<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 1, 2000.
REGISTRATION NO. 333-92545
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
SELECTICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0432030
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3 WEST PLUMERIA DRIVE, SAN JOSE, CA 95134
(408) 545-2400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RAJEN JASWA
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
SELECTICA, INC.
3 WEST PLUMERIA DRIVE, SAN JOSE, CA 95134
(408) 545-2400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT V. GUNDERSON, JR., ESQ. MARK A. BERTELSEN, ESQ.
BENNETT L. YEE, ESQ. JOSE F. MACIAS, ESQ.
ANDREW BAW, ESQ. BETSEY SUE, ESQ.
THEODORE G. WANG, ESQ. JON C. AVINA, ESQ.
PARKER E. HOBSON, ESQ. BROOKE D. COLEMAN, ESQ.
GUNDERSON DETTMER STOUGH WILSON SONSINI GOODRICH & ROSATI
VILLENEUVE FRANKLIN & HACHIGIAN, LLP PROFESSIONAL CORPORATION
155 CONSTITUTION DRIVE 650 PAGE MILL ROAD
MENLO PARK, CALIFORNIA 94025 PALO ALTO, CALIFORNIA 94304
(650) 321-2400 (650) 493-9300
</TABLE>
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE CHART
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par value..... 4,600,000 $11.00 $50,600,000 $13,358
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
(3) A fee of $19,800 was previously paid by the Registrant in connection with
the filing on December 10, 1999. Pursuant to Rule 457(b) under the
Securities Act, such fee is being credited against the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE. THE INFORMATION IN THIS
PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES
UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 2000
4,000,000 Shares
[Selectica Logo]
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock is expected to be
between $9.00 and $11.00 per share. We have made application to list our common
stock on The Nasdaq Stock Market's National Market under the symbol "SLTC."
Selectica and a selling stockholder have granted the underwriters an option
to purchase a maximum of 600,000 additional shares to cover over-allotments of
shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS SELECTICA
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
THOMAS WEISEL PARTNERS LLC
U.S. BANCORP PIPER JAFFRAY
E*OFFERING
The date of this prospectus is , 2000.
<PAGE> 3
[DESCRIPTION OF ARTWORK
At the top of the page is the phrase: "Selectica's Internet Selling System
Solution:" The following phrase is beneath: "Managing the Sale and Lifecycle of
Complex Products and Services."
In the center of the page is a diagram with a small circle situated in the
middle of a larger ring. The small circle is darkly shaded and contains the
following text: "ACE Knowledge Base." The ring is divided into eight sections,
each of which has an arrow which points to and from the shaded circle. The outer
section of the ring contains the following text: "Proposal Preparation," "Order
Fulfillment," "Moves, Changes and Additions," "Needs Analysis," "Product/Service
Configuration," "Cross-Sell Up-Sell," "Financing/Support Configuration" and
"Pricing Quotation." The word "Internet" is between two of the arrows.
Above the ring are three screen shots of our customers' web sites. An arrow
links each screen shot to a section of the ring. Below the screen shot to the
left is the following text: "By using Selectica, BMW provides customers with its
full range of features, options and financing alternatives to configure and
price an automobile, and has had over 240 million hits to date." To the right of
the screen shot in the middle is the following text: "HP has built an advisor
using Selectica that analyzes users' needs and identifies the optimal product
match from among dozens of options." Below the screen shot to the right is the
following text: "3Com used Selectica to assist users in configuring complex
network routers in real time."
Below the ring are three screen shots out of customers' web sites. An arrow
links each screen shot to a section of the ring. Above the screen shot to the
left is the following text: "Selectica's technology is in use both in the U.S.
and internationally at companies such as Samsung where Korean resellers can
configure and buy PCs in an intuitive, guided selling environment." To the right
of the screen shot in the middle is the following text: "Aspect Communications
uses Selectica to keep its sales force current on pricing structures so that
quotes can be generated accurately and quickly." Above the screen shot to the
right is the following text: "3Com also used Selectica to build a network
advisor that is deployed on distributors' web sites."]
<PAGE> 4
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY.................. 3
RISK FACTORS........................ 6
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS................ 19
USE OF PROCEEDS..................... 20
DIVIDEND POLICY..................... 20
CAPITALIZATION...................... 21
DILUTION............................ 22
SELECTED CONSOLIDATED FINANCIAL
DATA.............................. 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 24
BUSINESS............................ 38
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
MANAGEMENT.......................... 50
RELATED PARTY TRANSACTIONS.......... 60
PRINCIPAL STOCKHOLDERS.............. 62
DESCRIPTION OF CAPITAL STOCK........ 66
SHARES ELIGIBLE FOR FUTURE SALE..... 69
UNDERWRITING........................ 71
NOTICE TO CANADIAN RESIDENTS........ 74
LEGAL MATTERS....................... 76
EXPERTS............................. 76
WHERE YOU CAN FIND MORE
INFORMATION....................... 76
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS........................ F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Selectica and the common stock being sold in this offering
in our financial statements and notes appearing elsewhere in this prospectus and
our risk factors beginning on page 6.
SELECTICA, INC.
Selectica is a leading provider of Internet selling system software and
services that enable companies to efficiently sell complex products and services
over intranets, which are networks of computers that are internal to companies
and use Internet technologies, extranets, which are intranets that outsiders,
such as suppliers and customers, are allowed to access, and the public Internet.
Our ACE suite of software products is a comprehensive Internet selling system
solution that guides a new customer through an analysis of its needs and product
or service selection and also guides an experienced customer, partner or
employee through product or service configuration, pricing and order creation
over the Internet, thereby helping convert potential buyers into customers. Our
Internet selling system solution allows companies to use the Internet platform
to deploy a selling application to many points of contact, including personal
computers, in-store kiosks and mobile devices, while offering customers,
partners and employees an interface customized to their specific needs.
The Internet is transforming the business environment by increasing
competition and enabling the development of new business models. In order to
remain competitive, companies must find innovative ways to sell, increase
efficiencies in the sales cycle and deliver greater customer satisfaction. A
growing number of companies are seeking to leverage the Internet to market and
sell their products and services. To date, many electronic commerce transactions
have been simple purchases of products such as books, compact discs, stocks and
toys. We believe, however, that growth in electronic commerce will be driven by
the ability of companies to complete complex transactions such as
business-to-business electronic commerce, which is the sale of products and
services over the Internet from businesses to other businesses, and the sale of
consumer products and services involving multiple features and options.
The completion of a complex sales transaction depends on a seller's ability
to identify and satisfy a buyer's needs. In traditional sales, companies rely on
trained salespeople to interact with customers to address customer needs,
explain product features and ultimately consummate the sale. To date, many
electronic commerce web sites have been static collections of non-interactive
content, and have limited ability to assist and guide a customer through a
purchase decision. Using the Internet to complete complex sales transactions,
however, requires businesses to implement a sophisticated system that performs
the traditional role of the salesperson throughout the sales lifecycle of the
products and services.
In parallel with the growth of electronic commerce, the Internet is
becoming a technology platform for business application deployment. With the
emergence of the Internet platform, which includes intranets, extranets and the
public Internet, companies are able to more broadly and cost-effectively deploy
business applications to customers, partners and employees and make the most
current applications and information immediately available on Internet-enabled
devices.
Our ACE suite of products enables businesses to easily develop and rapidly
deploy an Internet sales channel, or a means for selling products and services
over the Internet, that interactively assists their customers, partners and
employees through the selection, configuration, pricing, quoting and fulfillment
processes. ACE is a comprehensive Internet selling system that meets the needs
of companies looking to efficiently sell complex products and services. Our
product architecture has been designed specifically for the Internet, providing
our solution with scalability, which is the ability to accommodate substantial
increases in the number of users concurrently using the product, reliability and
flexibility. Additionally, our Internet selling system solution has been
developed with an open architecture that leverages data in existing enterprise
applications, such as enterprise resource planning systems, providing an
easy-to-install application that is designed to reduce deployment time.
Our current customers include 3Com, Allied Signal, Aspect Communications,
BMW, Centigram, Cisco, expenseVision, Fireman's Fund, Fujitsu, Hewlett-Packard,
LoanMarket, Redback Networks, RTS Software, Samsung, Sun Microsystems and
Watlow. We have developed strong working relationships with system integrators,
such as Andersen Consulting, Arthur Andersen, EDS, A.T. Kearny, KPMG and
PricewaterhouseCoopers, with independent software vendors, such as BroadVision,
InterWorld, Netscape/ AOL and Tibco, and with application service providers such
as Asera and Corio. Our strategic investors are the Intel 64 Fund and ITOCHU
Corporation.
Selectica was incorporated in June 1996. Our principal offices are located
at 3 West Plumeria Drive, San Jose, California 95134 and our telephone number is
(408) 545-2400. Our Internet address is www.selectica.com. The information
contained on our web site does not constitute a part of this prospectus.
3
<PAGE> 6
THE OFFERING
Common stock offered...................... 4,000,000 shares
Common stock offered in the private
placement................................. 1,000,000 shares
Common stock to be outstanding after this
offering and the private placement........ 33,156,334 shares
Use of proceeds from this offering and the
private placement......................... Working capital and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.... SLTC
The table above is based on shares outstanding as of December 31, 1999 and
assumes the exercise of outstanding warrants to purchase 253,879 shares of
common stock that terminate upon the consummation of this offering. This table
excludes:
- 2,180,815 shares of common stock issuable upon exercise of stock options
outstanding under our stock option plans at a weighted average exercise
price of $2.97 per share at December 31, 1999;
- 1,371,077 shares of common stock available for issuance under our 1996
Stock Plan of which 1,000,000 increase to shares available under the plan
was approved subsequent to December 31, 1999;
- 820,408 shares of common stock issuable upon exercise of warrants with a
weighted average exercise price of $9.79 per share, assuming an exercise
price of $10.00 per share for one warrant to purchase 800,000 shares of
common stock;
- 2,200,000 shares of common stock available for issuance under our 1999
Equity Incentive Plan; and
- 1,000,000 shares of common stock available for issuance under our 1999
Employee Stock Purchase Plan.
------------------
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
- conversion of all outstanding shares of preferred stock into shares of
common stock upon the consummation of this offering;
- exercise of outstanding warrants to purchase 253,879 shares of our common
stock; and
- no exercise of the underwriters' over-allotment option.
------------------
Selectica, ACE and Selectica's logo are our trademarks and we have filed
applications to register Selectica and ACE. Trade names, service marks or
trademarks of other companies appearing in this prospectus are the property of
their respective holders.
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
PERIOD FROM INCEPTION MARCH 31, DECEMBER 31,
(JUNE 6, 1996) TO ----------------- -------------------
MARCH 31, 1997 1998 1999 1998 1999
--------------------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total revenues.............................. $ 55 $ 170 $ 3,444 $ 1,980 $ 9,440
Loss from operations........................ (256) (3,188) (7,636) (4,816) (12,386)
Net loss applicable to common
stockholders.............................. (251) (3,101) (7,537) (4,722) (13,042)
Net loss per share applicable to common
stockholders:
Basic and diluted......................... $(0.15) $ (0.91) $ (1.58) $ (1.05) $ (2.47)
Weighted average shares -- basic and
diluted................................. 1,634 3,425 4,782 4,479 5,270
Pro forma net loss per share applicable to
common stockholders:
Basic and diluted......................... $ (0.44) $ (0.58)
Weighted average shares -- basic and
diluted................................. 17,282 22,455
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $14,124 60,236
Working capital............................................. 10,851 56,963
Total assets................................................ 27,120 73,232
Total stockholders' equity.................................. 19,647 65,759
</TABLE>
See Note 1 of notes to consolidated financial statements for a description
of the method that we used to compute our basic and diluted net loss per share
applicable to common stockholders and pro forma basic and diluted net loss per
share applicable to common stockholders.
The as adjusted column in the consolidated balance sheet data table above
reflects the exercise of warrants to purchase 253,879 shares of common stock at
$4.382 that terminate upon the consummation of this offering and our sale of
4,000,000 shares of common stock in this offering and the sale of 1,000,000
shares of common stock issued in the private placement, in each case at an
assumed initial public offering price of $10.00 per share, after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us and the application of our net proceeds from this offering and the
private placement.
5
<PAGE> 8
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. You should carefully consider the following risk factors and the other
information in this prospectus before investing in our common stock.
RISKS RELATED TO OUR BUSINESS
THE UNPREDICTABILITY OF OUR QUARTERLY REVENUES AND RESULTS OF OPERATIONS MAKES
IT DIFFICULT TO PREDICT OUR FINANCIAL PERFORMANCE AND MAY CAUSE VOLATILITY OR A
DECLINE IN THE PRICE OF OUR COMMON STOCK IF WE ARE UNABLE TO SATISFY THE
EXPECTATIONS OF INVESTORS OR THE MARKET.
In the past, our quarterly operating results have varied significantly, and
we expect these fluctuations to continue. Future operating results may vary
depending on a number of factors, many of which are outside of our control.
License and services revenues on contracts involving significant
implementation, customization or services which are essential to the
functionality of the software are recognized over the period of each engagement,
primarily using the percentage-of-completion method. In cases where license fees
or service payments are contingent on acceptance, we defer recognition of
revenues until the acceptance criteria are met. We use output measures
(milestones) to determine progress to completion for license and service
agreements that contain customer acceptance based on milestone achievements. For
all other license and service agreements accounted for using the
percentage-of-completion method, we determine progress to completion using input
measure based on labor hours earned. We classify revenues for these arrangements
as license revenues and services revenues based on its estimates of fair value
for each element and recognizes the revenues based on the percentage-of-
completion ratio for the arrangement. A provision for estimated losses on
engagements is made in the period in which the loss becomes probable and can be
reasonably estimated.
License revenues are recognized when persuasive evidence of an agreement
exists, delivery of the product has occurred, no significant obligations with
regard to implementation, customization or services, the fee is fixed or
determinable and collectibility is probable. Provisions for sales returns are
provided at the time of revenue recognition based on estimated returns. We have
not incurred material charges for product returns to date.
Services revenue primarily comprises revenue from consulting fees,
maintenance contracts and training. Services revenue from consulting and
training is recognized as the services are performed.
Maintenance contracts include the right to unspecified upgrades and ongoing
support. Maintenance revenues are deferred and recognized on a straight-line
basis, as services revenues, over the life of the related contract, which is
typically one year.
In addition, because we rely on a limited number of customers, the timing
of milestone achievement or customer acceptance by, the amount of services we
provide to, or the recognition of significant license revenues upon shipment to
a single customer can significantly affect our operating results. For example,
our services revenues declined significantly in the quarter ended June 30, 1999
due to completion of a services contract with BMW of North America, one of our
significant customers. Our license and service revenues increased significantly
in the quarters ended September 30, 1999 and December 31, 1999 generally due to
the addition of two new customers in each respective quarter. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results of Operations." We intend to significantly
increase our operating expenses for the foreseeable future. Because these
expenses are relatively fixed in the near
6
<PAGE> 9
term, any shortfall from anticipated revenues could cause our quarterly
operating results to fall below anticipated levels.
We may also experience seasonality in revenues. For example, our quarterly
results may fluctuate based upon our customers' calendar year budgeting cycles.
These seasonal variations may lead to fluctuations in our quarterly revenues and
operating results.
Based upon the foregoing, we believe that period-to-period comparisons of
our results of operations are not necessarily meaningful and that such
comparisons should not be relied upon as indications of future performance. In
some future quarter, our operating results may be below the expectations of
public market analysts and investors, which could cause volatility or a decline
in the price of our common stock.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO CONTINUE TO INCUR NET LOSSES FOR THE
FORESEEABLE FUTURE.
We have experienced operating losses in each quarterly and annual period
since inception. We incurred net losses of $3.1 million for the fiscal year
ended March 31, 1998, $7.5 million for the fiscal year ended March 31, 1999 and
$13.0 million for the nine months ended December 31, 1999. As of December 31,
1999, we had an accumulated deficit of $24.4 million. We expect to significantly
increase our research and development, sales and marketing, and general and
administrative expenses, and consequently our losses will significantly increase
in the future. In order to accommodate our increase in employees, we have
recently leased a larger facility, and we will incur increased capital equipment
costs. We will need to generate significant increases in our revenues to achieve
and maintain profitability. If our revenue fails to grow or grows more slowly
than we anticipate or our operating expenses exceed our expectations, our losses
will significantly increase which would significantly harm our business and
operating results.
OUR LIMITED OPERATING HISTORY AND THE FACT THAT WE OPERATE IN A NEW INDUSTRY
MAKES EVALUATING OUR BUSINESS PROSPECTS AND RESULTS OF OPERATIONS DIFFICULT.
We were founded in June 1996 and have a limited operating history. We began
marketing our ACE suite of products in early 1997 and released ACE 4.0 in
November 1999. Our business model is still emerging, and the revenue and income
potential of our business and market are unproven. As a result of our limited
operating history, we have limited financial data that you can use to evaluate
our business. You must consider our prospects in light of the risks and
difficulties we may encounter as an early stage company in the new and rapidly
evolving market for Internet selling systems.
IF THE MARKET FOR INTERNET SELLING SYSTEM SOFTWARE DOES NOT DEVELOP AS WE
ANTICIPATE, OUR OPERATING RESULTS WILL BE SIGNIFICANTLY HARMED, WHICH COULD
CAUSE A DECLINE IN THE PRICE OF OUR COMMON STOCK.
The market for Internet selling system software, which has only recently
begun to develop, is evolving rapidly and likely will have an increased number
of competitors. Because this market is new, it is difficult to assess its
competitive environment, growth rate and potential size. The growth of the
market is dependent upon the willingness of businesses and consumers to purchase
complex goods and services over the Internet and the acceptance of the Internet
as a platform for business applications. In addition, companies that have
already invested substantial resources in other methods of Internet selling may
be reluctant or slow to adopt a new approach or application that may replace,
limit or compete with their existing systems.
The acceptance and growth of the Internet as a business platform may not
continue to develop at historical rates and a sufficiently broad base of
companies may not adopt Internet platform-based business applications, either of
which could significantly harm our business and operating results. The
7
<PAGE> 10
failure of the market for Internet selling system software to develop, or a
delay in the development of this market, would significantly harm our business
and operating results.
WE FACE INTENSE COMPETITION, WHICH COULD REDUCE OUR SALES, PREVENT US FROM
ACHIEVING OR MAINTAINING PROFITABILITY AND INHIBIT OUR FUTURE GROWTH.
The market for software and services that enable electronic commerce is
new, intensely competitive and rapidly changing. We expect competition to
persist and intensify, which could result in price reductions, reduced gross
margins and loss of market share. Our principal competitors include Calico
Commerce, FirePond and Trilogy Software. BAAN, Oracle Corporation, SAP and
Siebel Systems offer integrated solutions for electronic commerce incorporating
some of the functionality of an Internet selling system and may intensify their
efforts in our market. In addition, other enterprise software companies may
offer competitive products in the future.
Competitors vary in size and in the scope and breadth of the products and
services offered. Many of our competitors and potential competitors have a
number of significant advantages over us, including:
- a longer operating history;
- preferred vendor status with our customers;
- more extensive name recognition and marketing power; and
- significantly greater financial, technical, marketing and other
resources, giving them the ability to respond more quickly to new or
changing opportunities, technologies and customer requirements.
Our competitors may also bundle their products in a manner that may
discourage users from purchasing our products. Current and potential competitors
may establish cooperative relationships with each other or with third parties,
or adopt aggressive pricing policies to gain market share. Competitive pressures
may require us to reduce the prices of our products and services. We may not be
able to maintain or expand our sales if competition increases and we are unable
to respond effectively.
IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGE, INCLUDING MAINTAINING
INTEROPERABILITY OF OUR PRODUCT WITH THE SOFTWARE AND HARDWARE PLATFORMS
PREDOMINANTLY USED BY OUR CUSTOMERS, OUR PRODUCT MAY BE RENDERED OBSOLETE AND
OUR BUSINESS MAY FAIL.
Our industry is characterized by rapid technological change, changes in
customer requirements, frequent new product and service introductions and
enhancements and emerging industry standards. In order to achieve broad customer
acceptance, our products must be compatible with major software and hardware
platforms used by our customers. Our products currently operate on the Microsoft
Windows NT and Sun Solaris operating systems. In addition, our products are
required to interoperate with electronic commerce applications and databases. We
must continually modify and enhance our products to keep pace with changes in
these operating systems, applications and databases. Internet selling system
technology is complex and new products and product enhancements can require long
development and testing periods. If our products were to be incompatible with a
popular new operating system, electronic commerce application or database, our
business would be significantly harmed. In addition, the development of entirely
new technologies to replace existing software could lead to new competitive
products that have better performance or lower prices than our products and
could render our products obsolete and unmarketable.
8
<PAGE> 11
DEMAND FOR OUR PRODUCTS AND SERVICES WILL DECLINE SIGNIFICANTLY IF OUR SOFTWARE
CANNOT SUPPORT AND MANAGE A SUBSTANTIAL NUMBER OF USERS.
Our strategy requires that our products be highly scalable. To date, only a
limited number of our customers have deployed our ACE products on a large scale.
If our customers cannot successfully implement large-scale deployments, or if
they determine that we cannot accommodate large-scale deployments, our business
and operating results would be significantly harmed.
IF WE FAIL TO IMPROVE OUR ACCOUNTING AND FINANCIAL CONTROL SYSTEMS OR ACCURATELY
MANAGE THE PROGRESS OF OUR CUSTOMER CONTRACTS, OUR OPERATING RESULTS WILL BE
SIGNIFICANTLY HARMED.
In the past, we have had difficulty managing our accounting and financial
reporting systems and the volume and complexity of our customer contracts. We
need to improve our financial and accounting controls, improve our reporting and
approval procedures, expand and train key personnel within our finance and
management organizations, implement more robust information systems, and
accurately record and track our customer contracts. If we fail to improve our
financial systems, procedures and controls or if we fail to effectively manage
our customer contracts, our business and operating results would be
significantly harmed.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF CUSTOMERS
FOR A SIGNIFICANT PORTION OF OUR REVENUES, AND THE LOSS OF ANY OF THESE
CUSTOMERS COULD SIGNIFICANTLY HARM OUR BUSINESS AND OPERATING RESULTS.
Our business and financial condition is dependent on a limited number of
customers. Our five largest customers accounted for approximately 85% and 55% of
our revenues for the fiscal year ended March 31, 1999 and the nine months ended
December 31, 1999, respectively, and our ten largest customers accounted for 96%
and 76% of our revenues for the fiscal year ended March 31, 1999 and the nine
months ended December 31, 1999, respectively. Revenues from significant clients
as a percentage of total revenues are as follows:
FISCAL YEAR ENDED MARCH 31, 1999
<TABLE>
<S> <C>
BMW of North America........................................ 60%
Olicom...................................................... 10%
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
Aspect Communications....................................... 15%
3Com Corporation............................................ 13%
Fireman's Fund Insurance.................................... 13%
</TABLE>
We expect that we will continue to depend upon a relatively small number of
customers for a substantial portion of our revenues for the foreseeable future.
Contracts with our customers can generally be terminated on short notice by the
customer. As a result, if we fail to successfully sell our products and services
to one or more customers in any particular period, or a large customer purchases
less of our products or services, defers or cancels orders, or terminates its
relationship with us, our business and operating results would be harmed.
9
<PAGE> 12
OUR FAILURE TO MEET CUSTOMER EXPECTATIONS ON DEPLOYMENT OF OUR PRODUCTS COULD
RESULT IN NEGATIVE PUBLICITY AND REDUCED SALES, BOTH OF WHICH WOULD
SIGNIFICANTLY HARM OUR BUSINESS AND OPERATING RESULTS.
In the past, our customers have experienced difficulties or delays in
completing implementation of our products. We may experience similar
difficulties or delays in the future. Our Internet selling system solution
relies on defining a knowledge base that must contain all of the information
about the products and services being configured. We have found that extracting
the information necessary to construct a knowledge base can be more time
consuming than we or our customers anticipate. If our customers do not devote
the resources necessary to create the knowledge base, the deployment of our
products can be delayed. Deploying our ACE products can also involve
time-consuming integration with our customers' legacy systems, such as existing
databases and enterprise resource planning software. Failing to meet customer
expectations on deployment of our products could result in a loss of customers
and negative publicity regarding us and our products, which could adversely
affect our ability to attract new customers. In addition, time-consuming
deployments may also increase the amount of professional services we must
allocate to each customer, thereby increasing our costs and adversely affecting
our business and operating results.
OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT FOR US TO FORECAST REVENUE AND
AGGRAVATES THE VARIABILITY OF QUARTERLY FLUCTUATIONS, WHICH COULD CAUSE OUR
STOCK PRICE TO DECLINE.
The sales cycle of our products has historically averaged between four and
six months, and may sometimes be significantly longer. We are generally required
to provide a significant level of education regarding the use and benefits of
our products, and potential customers tend to engage in extensive internal
reviews before making purchase decisions. In addition, the purchase of our
products typically involves a significant commitment by our customers of capital
and other resources, and is therefore subject to delays that are beyond our
control, such as customers' internal budgetary procedures and the testing and
acceptance of new technologies that affect key operations. In addition, because
we intend to target large companies, our sales cycle can be lengthier due to the
decision process in large organizations. As a result of our products' long sales
cycles, we face difficulty predicting the quarter in which sales to expected
customers may occur. If anticipated sales from a specific customer for a
particular quarter are not realized in that quarter, our operating results for
that quarter could fall below the expectations of financial analysts and
investors, which could cause our stock price to decline.
IF WE ARE UNABLE TO MAINTAIN AND EXPAND OUR DIRECT SALES FORCE, SALES OF OUR
PRODUCTS AND SERVICES MAY NOT MEET OUR EXPECTATIONS AND OUR BUSINESS AND
OPERATING RESULTS WILL BE SIGNIFICANTLY HARMED.
We depend on our direct sales force for all of our current sales and our
future growth depends on the ability of our direct sales force to develop
customer relationships and increase sales to a level that will allow us to reach
and maintain profitability.
There is a shortage of the sales personnel we need, such as sales
engineers, and competition for qualified personnel is intense. In addition, it
will take time for new sales personnel to achieve full productivity. If we are
unable to hire or retain qualified sales personnel, or if newly hired personnel
fail to develop the necessary skills or to reach productivity when anticipated,
we may not be able to expand our sales organization and increase sales of our
products and services.
10
<PAGE> 13
IF WE ARE UNABLE TO GROW AND MANAGE OUR PROFESSIONAL SERVICES ORGANIZATION, WE
WILL BE UNABLE TO PROVIDE OUR CUSTOMERS WITH TECHNICAL SUPPORT FOR OUR PRODUCTS,
WHICH COULD SIGNIFICANTLY HARM OUR BUSINESS AND OPERATING RESULTS.
As we increase licensing of our software products, we must grow our
professional services organization to assist our customers with implementation
and maintenance of our products. Because these professional services have been
expensive to provide, we must improve the management of our professional
services organizations to improve our results of operations. Improving the
efficiency of our consulting services is dependent upon attracting and retaining
experienced project managers. Competition for these project managers is intense,
particularly in the Silicon Valley and in India where the majority of our
professional services organization is based, and we may not be able to hire
qualified individuals to fill these positions.
Although services revenues, which are primarily comprised of revenues from
consulting fees, maintenance contracts and training, are important to our
business, representing 52% and 45% of total revenues for the year ended March
31, 1999 and the nine months ended December 31, 1999, respectively services
revenues have lower gross margins than license revenues. Gross margins for
services revenues were 34% and negative 21% for the year ended March 31, 1999
and the nine months ended December 31, 1999, respectively, compared to gross
margins for license revenues of 89% and 95% for the respective periods. As a
result, a continued increase in the percentage of total net revenues represented
by services revenues or an unexpected decrease in license revenues could have a
detrimental impact on our overall gross margins and our operating results.
We anticipate that customers will increasingly utilize third-party
consultants to install and deploy our products. Additionally, in the future we
intend to charge for our professional services on a time and materials rather
than a fixed-fee basis. To the extent that customers are unwilling to utilize
third-party consultants or require us to provide professional services on a
fixed fee basis, our cost of services revenues could increase and could cause us
to recognize a loss on a specific contract, either of which would adversely
affect our operating results. In addition, if we are unable to provide these
resources, we may lose sales or incur customer dissatisfaction and our business
and operating results could be significantly harmed.
FAILURE TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH SYSTEMS INTEGRATORS AND
CONSULTING FIRMS, WHICH ASSIST US WITH THE SALE AND INSTALLATION OF OUR
PRODUCTS, WOULD IMPEDE ACCEPTANCE OF OUR PRODUCTS AND THE GROWTH OF OUR
REVENUES.
We rely in part upon systems integrators and consulting firms to recommend
our products to their customers and to install and deploy our products. To
increase our revenues and implementation capabilities, we must develop and
expand our relationships with these systems integrators and consulting firms. If
systems integrators and consulting firms develop, market or recommend
competitive Internet selling systems, our revenues may decline. In addition, if
these systems integrators and consulting firms are unwilling to install and
deploy our products, we may not have the resources to provide adequate
implementation services to our customers and our business and operating results
could be significantly harmed.
OUR OPERATING RESULTS ARE SIGNIFICANTLY DEPENDENT UPON THE SALE OF OUR ACE SUITE
OF PRODUCTS, INCLUDING THE NEW VERSION OF OUR PRODUCT RELEASED IN NOVEMBER 1999.
We expect that we will continue to depend on revenue from new and enhanced
versions of ACE for the foreseeable future, and if companies do not adopt or
expand their use of ACE, our business and operating results would be
significantly harmed. ACE 4.0 was introduced in November 1999.
11
<PAGE> 14
Since ACE 4.0 has only recently been introduced, customers may discover errors
or other problems with the product, which may adversely affect its acceptance.
IF NEW VERSIONS AND RELEASES OF OUR PRODUCTS CONTAIN ERRORS OR DEFECTS, WE COULD
SUFFER LOSSES AND NEGATIVE PUBLICITY, WHICH WOULD ADVERSELY AFFECT OUR BUSINESS
AND OPERATING RESULTS.
Complex software products such as ours often contain errors or defects,
including errors relating to security, particularly when first introduced or
when new versions or enhancements are released. In the past, we have discovered
defects in our products and provided product updates to our customers to address
such defects. ACE and other future products may contain defects or errors, which
could result in lost revenues, a delay in market acceptance or negative
publicity, which would significantly harm our business and operating results.
MANY OF OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE RELATIVELY NEW AND MUST BE
INTEGRATED INTO OUR ORGANIZATION.
Many of our executive officers and key personnel have recently joined
Selectica, including our Vice President of Marketing and our Chief Financial
Officer, each of whom have joined Selectica since June 1999. Our future
performance will depend, in part, on our ability to successfully integrate our
newly hired executive officers and key personnel into our management team, and
our ability to develop an effective working relationship among management.
OUR RAPID GROWTH PLACES A SIGNIFICANT STRAIN ON OUR MANAGEMENT SYSTEMS AND
RESOURCES, AND IF WE FAIL TO MANAGE THIS GROWTH, OUR BUSINESS WILL BE HARMED.
We have recently experienced a period of rapid growth and expansion, which
places significant demands on our managerial, administrative, operational,
financial and other resources. From December 31, 1998 to December 31, 1999, we
expanded from 68 to 269 employees. We have also significantly expanded our
operations in the U.S. and internationally and we plan to continue to expand the
geographic scope of our operations.
To accommodate continued anticipated growth and expansion, we will be
required to improve existing and implement new operational and financial
systems, procedures and controls. In particular, we will be required to improve
our accounting and financial reporting systems and to successfully manage an
increasing number of relationships with customers, suppliers and employees, and
an increasing number of complex contracts. These demands will require the
addition of new management personnel, and we are currently in the process of
recruiting individuals to fill important management positions. If we are not
able to install adequate systems, procedures and controls to support our future
operations in an efficient and timely manner, or if we are unable to otherwise
manage growth effectively, our business would be harmed.
THE LOSS OF ANY OF OUR KEY PERSONNEL WOULD HARM OUR COMPETITIVENESS BECAUSE OF
THE TIME AND EFFORT THAT WE WOULD HAVE TO EXPEND TO REPLACE SUCH PERSONNEL.
We believe that our success will depend on the continued employment of our
senior management team and key technical personnel, none of whom, except Rajen
Jaswa, our President and Chief Executive Officer, and Dr. Sanjay Mittal, our
Chief Technical Officer and Vice President of Engineering, has an employment
agreement with us. If one or more members of our senior management team or key
technical personnel were unable or unwilling to continue in their present
positions, these individuals would be difficult to replace. Consequently, our
ability to manage day-to-day operations, including our operations in Pune,
India, develop and deliver new technologies, attract
12
<PAGE> 15
and retain customers, attract and retain other employees and generate revenues
would be significantly harmed.
A SUBSTANTIAL PORTION OF OUR OPERATIONS ARE CONDUCTED BY INDIA-BASED PERSONNEL,
AND ANY CHANGE IN THE POLITICAL AND ECONOMIC CONDITIONS OF INDIA OR IN
IMMIGRATION POLICIES, WHICH WOULD ADVERSELY AFFECT OUR ABILITY TO CONDUCT OUR
OPERATIONS IN INDIA, COULD SIGNIFICANTLY HARM OUR BUSINESS.
We conduct quality assurance and professional services operations in India.
As of December 31, 1999, there were 101 persons employed in India. We are
dependent on our India-based operations for these aspects of our business and we
intend to grow our operations in India. As a result, we are directly influenced
by the political and economic conditions affecting India. Operating expenses
incurred by our operations in India are denominated in Indian currency and
accordingly, we are exposed to adverse movements in currency exchange rates.
This, as well as any other political or economic problems or changes in India,
could have a negative impact on our India-based operations, resulting in
significant harm to our business and operating results. Furthermore, the
intellectual property laws of India may not adequately protect our proprietary
rights. We believe that it is particularly difficult to find quality management
personnel in India, and we may not be able to timely replace our current
India-based management team if any of them were to leave our company.
Our training program for some of our India-based employees includes an
internship at our San Jose, California headquarters. Additionally, we provide
services to some of our customers internationally with India-based employees. We
presently rely on a number of visa programs to enable these India-based
employees to travel and work internationally. Any change in the immigration
policies of India or the countries to which these employees travel and work
could cause disruption or force the termination of these programs, which would
harm our business.
BECAUSE COMPETITION FOR QUALIFIED PERSONNEL IS INTENSE IN OUR INDUSTRY AND IN
OUR GEOGRAPHIC REGION, WE MAY NOT BE ABLE TO RECRUIT OR RETAIN PERSONNEL, WHICH
COULD IMPACT THE DEVELOPMENT OR SALES OF OUR PRODUCTS.
Our success depends on our ability to attract and retain qualified
management, engineering, sales and marketing and professional services
personnel. Competition for these types of personnel is intense, especially in
the Silicon Valley. We do not have employment agreements with most of our key
personnel. If we are unable to retain our existing key personnel, or attract and
train additional qualified personnel, our growth may be limited due to our lack
of capacity to develop and market our products.
IF WE BECOME SUBJECT TO PRODUCT LIABILITY LITIGATION, IT COULD BE COSTLY AND
TIME CONSUMING TO DEFEND AND COULD DISTRACT US FROM FOCUSING ON OUR BUSINESS AND
OPERATIONS.
Since our products are company-wide, mission-critical computer applications
with a potentially strong impact on our customers' sales, errors, defects or
other performance problems could result in financial or other damages to our
customers. Although our license agreements generally contain provisions designed
to limit our exposure to product liability claims, existing or future laws or
unfavorable judicial decisions could negate such limitation of liability
provisions. Product liability litigation, even if it were unsuccessful, would be
time consuming and costly to defend.
13
<PAGE> 16
OUR FUTURE SUCCESS DEPENDS ON OUR PROPRIETARY INTELLECTUAL PROPERTY, AND IF WE
ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY FROM POTENTIAL COMPETITORS OUR
BUSINESS MAY BE SIGNIFICANTLY HARMED.
We rely on a combination of trademark, trade secret and copyright law and
contractual restrictions to protect the proprietary aspects of our technology.
These legal protections afford only limited protection for our technology. We
currently have three pending U.S. patent applications and two pending U.S.
trademark applications. We do not have any foreign patents or patent
applications. Our trademark and patent applications might not result in the
issuance of any trademarks or patents. If any patent or trademark is issued, it
might be invalidated or circumvented or otherwise fail to provide us any
meaningful protection. We seek to protect source code for our software,
documentation and other written materials under trade secret and copyright laws.
We license our software pursuant to signed license agreements, which impose
certain restrictions on the licensee's ability to utilize the software. We also
seek to avoid disclosure of our intellectual property by requiring employees and
consultants with access to our proprietary information to execute
confidentiality agreements. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary. In addition, the laws
of many countries do not protect our proprietary rights to as great an extent as
do the laws of the United States. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets and to
determine the validity and scope of the proprietary rights of others. Our
failure to adequately protect our intellectual property could significantly harm
our business and operating results.
IF WE ARE SUBJECT TO INTELLECTUAL PROPERTY LITIGATION, WE MAY INCUR SUBSTANTIAL
COSTS, WHICH WOULD HARM OUR OPERATING RESULTS.
Our success and ability to compete are dependent on our ability to operate
without infringing upon the proprietary rights of others. Any intellectual
property litigation could result in substantial costs and diversion of resources
and could significantly harm our business and operating results. In the past, we
received correspondence from two patent holders recommending that we license
their respective patents. After review of these patents, we informed these
patent holders that in our opinion, it would not be necessary to license these
patents. However, we may be required to license either or both patents or incur
legal fees to defend our position that such licenses are not necessary. We
cannot assure you that if required to do so, we would be able to obtain a
license to use either patent on commercially reasonable terms, or at all. In
January 2000 we received correspondence from Celestica, Inc. alleging that our
use of the mark SELECTICA infringes upon their registered mark of CELESTICA. We
are currently evaluating the validity of their claim. We may be required to
incur legal fees and enter into litigation with respect to defending our mark.
Any threat of intellectual property litigation could force us to do one or
more of the following:
- cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant intellectual property, which license
may not be available on reasonable terms;
- redesign those products or services that incorporate such intellectual
property; or
- pay money damages to the holder of the infringed intellectual property
right.
In the event of a successful claim of infringement against us and our
failure or inability to license the infringed intellectual property on
reasonable terms or license a substitute intellectual property or redesign our
product to avoid infringement, our business and operating results would be
significantly harmed. If we are forced to abandon use of our trademark, we may
be forced to change
14
<PAGE> 17
our name and incur substantial expenses to build a new brand, which would
significantly harm our business and operating results.
RESTRICTIONS ON EXPORT OF ENCRYPTED TECHNOLOGY COULD CAUSE US TO INCUR DELAYS IN
INTERNATIONAL PRODUCT SALES, WHICH WOULD ADVERSELY IMPACT THE EXPANSION AND
GROWTH OF OUR BUSINESS.
Our software utilizes encryption technology, the export of which is
regulated by the United States government. If our export authority is revoked or
modified, if our software is unlawfully exported or if the United States adopts
new legislation restricting export of software and encryption technology, we may
experience delay or reduction in shipment of our products internationally.
Current or future export regulations could limit our ability to distribute our
products outside of the United States. While we take precautions against
unlawful exportation of our software, we cannot effectively control the
unauthorized distribution of software across the Internet.
IF WE ARE UNABLE TO EXPAND OUR OPERATIONS INTERNATIONALLY OR ARE UNABLE TO
MANAGE THE GREATER COLLECTIONS, MANAGEMENT, HIRING, LEGAL, REGULATORY AND
CURRENCY RISKS FROM THESE INTERNATIONAL OPERATIONS, OUR BUSINESS AND OPERATING
RESULTS WILL BE HARMED.
We intend to expand our operations internationally. This expansion may be
more difficult or take longer than we anticipate, and we may not be able to
successfully market, sell or deliver our products internationally. If successful
in our international expansion, we will be subject to a number of risks
associated with international operations, including:
- longer accounts receivable collection cycles;
- expenses associated with localizing products for foreign markets;
- difficulties in managing operations across disparate geographic areas;
- difficulties in hiring qualified local personnel;
- difficulties associated with enforcing agreements and collecting
receivables through foreign legal systems;
- unexpected changes in regulatory requirements that impose multiple
conflicting tax laws and regulations; and
- fluctuations in foreign exchange rates and the possible lack of financial
stability in foreign countries that prevent overseas sales growth.
YEAR 2000 ISSUES COULD FORCE US TO INCUR SIGNIFICANT COSTS OR CAUSE OUR
CUSTOMERS TO DELAY THE LICENSING OF OUR PRODUCTS.
Most of our license agreements with our customers represent and warrant
that our products are Year 2000 compliant. If our products do not operate
properly with date calculations involving the Year 2000 and subsequent dates, we
could incur unanticipated expenses to remedy any problems, which could
significantly harm our business and operating results. Our products are
generally integrated into computer systems involving sophisticated hardware and
complex software products, which may not be Year 2000 compliant. The failure of
our customers' systems to be Year 2000 compliant could impede the success of
applications that we have developed for them. Accordingly, known or unknown
defects that affect the operation of our software, including any defects or
errors in applications that include our products, could result in a delay or
loss of revenue, diversion of development resources, damage to our reputation or
increased service or warranty costs and litigation costs, which could harm our
business and operating results. We may also experience reduced
15
<PAGE> 18
licensing of our software and services as current or potential customers place a
priority on correcting Year 2000 problems and defer purchase decisions for
software products.
RISKS RELATED TO THE INDUSTRY
IF USE OF THE INTERNET DOES NOT CONTINUE TO DEVELOP AND RELIABLY SUPPORT THE
DEMANDS PLACED ON IT BY ELECTRONIC COMMERCE, THE MARKET FOR OUR PRODUCTS AND
SERVICES MAY BE ADVERSELY AFFECTED, AND WE MAY NOT ACHIEVE ANTICIPATED SALES
GROWTH.
Growth in sales of our products and services depends upon the continued and
increased use of the Internet as a medium for commerce and communication. Growth
in the use of the Internet is a recent phenomenon and may not continue. In
addition, the Internet infrastructure may not be able to support the demands
placed on it by increased usage and bandwidth requirements. Other risks
associated with commercial use of the Internet could slow its growth, including:
- inadequate security of information distributed over the Internet,
resulting in privacy concerns;
- inadequate reliability of the network infrastructure;
- slow development of enabling technologies and complementary products; and
- limited accessibility and ability to deliver quality service.
In addition, the recent growth in the use of the Internet has caused
frequent periods of poor or slow performance, requiring components of the
Internet infrastructure to be upgraded. Delays in the development or adoption of
new equipment and standards or protocols required to handle increased levels of
Internet activity, or increased government regulation, could cause the Internet
to lose its viability as a commercial medium. If the Internet infrastructure
does not develop sufficiently to address these concerns, it may not develop as a
commercial marketplace, which is necessary for us to increase sales.
INCREASING GOVERNMENT REGULATION OF THE INTERNET COULD LIMIT THE MARKET FOR OUR
PRODUCTS AND SERVICES, OR IMPOSE GREATER TAX BURDENS ON US OR LIABILITY FOR
TRANSMISSION OF PROTECTED DATA.
As electronic commerce and the Internet continue to evolve, federal, state
and foreign governments may adopt laws and regulations covering issues such as
user privacy, taxation of goods and services provided over the Internet,
pricing, content and quality of products and services. If enacted, these laws
and regulations could limit the market for electronic commerce, and therefore
the market for our products and services. Although many of these regulations may
not apply directly to our business, we expect that laws regulating the
solicitation, collection or processing of personal or consumer information could
indirectly affect our business.
Laws or regulations concerning telecommunications might also negatively
impact us. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on these companies. This type of legislation could increase
the cost of conducting business over the Internet, which could limit the growth
of electronic commerce generally and have a negative impact on our business and
operating results.
16
<PAGE> 19
RISKS RELATED TO THIS OFFERING
BECAUSE WE ARE IN THE INTERNET INDUSTRY, OUR STOCK PRICE MAY BE PARTICULARLY
VOLATILE, WHICH COULD LEAD TO CLASS ACTION LITIGATION.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
companies, particularly Internet-related companies, have been extremely
volatile, and have experienced fluctuations that have often been unrelated to or
disproportionate to the operating performance of these companies. These broad
market fluctuations could adversely affect the market price of our common stock.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could harm our business and operating results.
OUR EXECUTIVE OFFICER AND DIRECTORS WILL RETAIN SUBSTANTIAL VOTING CONTROL OVER
US AFTER THE OFFERING THAT WILL ALLOW THEM TO INFLUENCE THE OUTCOME OF MATTERS
SUBMITTED TO STOCKHOLDERS FOR APPROVAL.
On completion of this offering and the private placement, our executive
officers and directors and their affiliates, based on ownership as of December
31, 1999, will beneficially own, in the aggregate, approximately 54% of our
outstanding common stock (assuming no exercise of the underwriters' over-
allotment option). As a result, these stockholders will be able to exercise
significant influence over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions,
which could have the effect of delaying or preventing a third party from
acquiring control over us. For more information regarding the ownership of our
outstanding stock by our executive officers and directors and their affiliates,
see "Principal Stockholders."
WE HAVE VARIOUS MECHANISMS IN PLACE TO DISCOURAGE TAKEOVER ATTEMPTS THAT COULD
SUPPRESS OUR STOCK PRICE AND MAKE IT MORE DIFFICULT TO ACQUIRE US.
Our certificate of incorporation, our bylaws and Delaware law contain
provisions that could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. These provisions
include:
- authorizing the issuance of shares of blank check preferred stock;
- providing for a classified board of directors with staggered, three year
terms; and
- prohibiting specified stockholder action by written consent.
For information regarding these and other provisions, please see
"Description of Capital Stock." We are also currently considering other
anti-takeover measures, including a stockholders' rights plan.
IF A SIGNIFICANT NUMBER OF SHARES BECOME AVAILABLE FOR SALE AND ARE SOLD IN A
SHORT PERIOD OF TIME, THE MARKET PRICE OF OUR STOCK COULD DECLINE.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Based on shares outstanding as of December 31, 1999, upon completion
of this offering and the private placement, we will have outstanding 33,156,334
shares of common stock. Other than the shares of common stock sold in this
offering, no shares will immediately be eligible for sale in the public market
immediately. Our stockholders will be subject to agreements with the
underwriters or us that restrict their ability to
17
<PAGE> 20
transfer their stock for 180 days from the date of this prospectus. After these
agreements expire, an additional 25,216,753 shares will be eligible for sale in
the public market. For a detailed discussion of the shares eligible for future
sale, please see "Shares Eligible for Future Sale."
AS A NEW INVESTOR, YOU WILL INCUR SUBSTANTIAL DILUTION AS A RESULT OF THIS
OFFERING AND FUTURE EQUITY ISSUANCES.
The initial public offering price will be substantially higher than the
book value per share of our outstanding common stock. As a result, investors
purchasing common stock in this offering will incur immediate dilution of $8.16
a share, assuming an initial public offering price of $10.00 per share. The
exercise of outstanding options and warrants would result in further dilution.
WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING FOR PURPOSES
WITH WHICH YOU MAY NOT AGREE, AND WE MAY NOT BE SUCCESSFUL IN INVESTING THESE
PROCEEDS.
We plan to use the proceeds from this offering for general corporate
purposes. Therefore, we will have broad discretion as to how we will spend the
proceeds, and our stockholders may not agree with the ways in which we use the
proceeds. We may not be successful in investing the proceeds from this offering
in our operations or external investments to yield a favorable return.
18
<PAGE> 21
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology; for instance, may, will,
should, intend, expect, plan, anticipate, believe, estimate, predict, potential
or continue, the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks outlined in the Risk Factors section. These factors
may cause our actual results to differ materially from any forward-looking
statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither any other person nor we
assumes responsibility for the accuracy and completeness of the forward-looking
statements.
19
<PAGE> 22
USE OF PROCEEDS
Our net proceeds from the sale of the 4,000,000 shares of common stock in
this offering and from the sale of 1,000,000 shares of common stock in the
private placement are estimated to be $45.0 million, after deducting estimated
underwriting discounts and commissions and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $49.2 million.
We intend to use the net proceeds of this offering for additional working
capital and other general corporate purposes. We have not yet determined our
expected use of such proceeds, but we currently estimate that through March 31,
2001, we will use approximately $32.1 million for research and development,
sales and marketing and general and administrative expenses. These operating
expenses will be offset by the degree to which we recognize revenues from the
sales of our products and services. The amounts that we actually expend for
working capital and other general corporate purposes will vary significantly
depending on a number of factors, including future revenue growth, if any, and
the amount of cash that we generate from operations. As a result, we will retain
broad discretion over the allocation of the net proceeds from this offering. A
portion of the net proceeds may also be used for the acquisition of businesses,
products and technologies that are complementary to ours. We have no current
agreements or commitments for acquisitions of complementary businesses, products
or technologies. Pending these uses, we will invest the net proceeds of this
offering in short-term, investment grade and interest-bearing securities.
DIVIDEND POLICY
We have not paid any cash dividends since inception and do not currently
intend to pay any cash dividends.
20
<PAGE> 23
CAPITALIZATION
The following table sets forth the following information:
- our actual capitalization as of December 31, 1999;
- our pro forma capitalization after giving effect to the conversion of all
outstanding shares of preferred stock into common stock; and
- our pro forma as adjusted capitalization to reflect our receipt of the
estimated net proceeds from the exercise of warrants to purchase 253,879
shares of common stock at $4.382 that terminate upon the consummation of
this offering and our sale of 4,000,000 shares of common stock in this
offering and the sale of 1,000,000 shares of common stock in the private
placement, after deducting the estimated underwriting discounts and
commissions and estimated offering expenses, the filing of a new
certificate of incorporation after the closing of this offering and the
application of our proceeds from this offering.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity:
Convertible preferred stock: $.0001 par value; 25,500,000
shares authorized, 19,710,957 shares issued and outstanding,
actual; 25,500,000 shares authorized, no shares outstanding,
pro forma; 10,000,000 shares
authorized, no shares outstanding, pro forma as adjusted.... $ 2 $ -- $ --
Common stock: $.0001 par value; 40,000,000 shares
authorized, 8,191,498 shares issued and outstanding,
actual; 75,000,000 shares authorized, 27,902,455 shares
outstanding, pro forma; 150,000,000 shares authorized,
33,156,334 shares outstanding, pro forma as adjusted... 1 3 3
Additional paid-in capital.................................. 57,057 57,057 103,169
Deferred compensation....................................... (6,011) (6,011) (6,011)
Stockholder notes receivable................................ (7,016) (7,016) (7,016)
Accumulated deficit......................................... (24,386) (24,386) (24,386)
-------- -------- -------
Total stockholders' equity............................. 19,647 19,647 65,759
-------- -------- -------
Total capitalization................................... 19,647 19,647 65,759
======== ======== =======
</TABLE>
This table excludes the following shares:
- 2,180,815 shares of common stock issuable upon exercise of stock options
outstanding as of December 31, 1999 at a weighted average exercise price
of $2.97 per share;
- 1,371,077 shares of common stock available for issuance under our 1996
Stock Plan, of which a 1,000,000 share increase to the shares available
under the plan was approved subsequent to December 31, 1999;
- 820,408 shares of common stock issuable upon the exercise of warrants
outstanding as of January 31, 1999 at a weighted average exercise price
of $9.79 per share assuming an exercise price of $10.00 per share of one
warrant to purchase 800,000 shares of common stock;
- 2,200,000 shares of common stock available for issuance under our 1999
Equity Incentive Plan; and
- 1,000,000 shares of common stock available for issuance under our 1999
Employee Stock Purchase Plan.
See "Management -- Employee Benefit Plans," and Notes 9 and 13 of "Notes to
Consolidated Financial Statements" for a description of our equity plans.
21
<PAGE> 24
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $15.9
million, or approximately $0.57 per share. Net tangible book value per share
represents the amount of stockholders' equity, less intangible assets, divided
by 28,156,334 shares of common stock outstanding after giving effect to the
assumed exercise of warrants to purchase 253,879 shares of Series E Preferred
Stock and the conversion of all outstanding shares of preferred stock into
shares of common stock upon completion of this offering.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common stock
immediately after completion of this offering and the private placement. After
giving effect to our sale of 4,000,000 shares of common stock in this offering
and 1,000,000 shares of common stock in the private placement at an assumed
initial public offering price of $10.00 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses, our net tangible book value as of December 31, 1999 would have been
$60.9 million or $1.84 per share. This represents an immediate increase in net
tangible book value of $1.27 per share to existing stockholders and an immediate
dilution in net tangible book value of $8.16 per share to purchasers of common
stock in the offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share as of December
31, 1999............................................... $0.57
Increase per share attributable to new investors.......... 1.27
-----
Pro forma net tangible book value per share after the
offering.................................................. 1.84
------
Dilution per share to new investors......................... $ 8.16
======
</TABLE>
The following table presents on a pro forma basis as of December 31, 1999,
after giving effect to the conversion of all outstanding shares of preferred
stock into common stock upon completion of this offering and the exercise of
warrants to purchase 253,879 shares of common stock, the differences between the
existing stockholders, the purchasers of shares in the offering and the private
placement investor with respect to the number of shares purchased from us, the
total consideration paid and the average price paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 28,156,334 84.9% $38,176,338 43.3% $ 1.36
New stockholders............... 4,000,000 12.1 40,000,000 45.4 10.00
Private placement investor..... 1,000,000 3.0 10,000,000 11.3 10.00
---------- ----- ----------- -----
Total..................... 33,156,334 100.0% $88,176,338 100.0% $ 2.66
========== ===== =========== ===== ======
</TABLE>
As of December 31, 1999, there were options outstanding to purchase a total
of 2,180,815 shares of common stock at a weighted average exercise price of
$2.97 per share. In addition, as of December 31, 1999, there were warrants
outstanding to purchase 20,408 shares of common stock at a weighted average
exercise price of $1.47 per share. To the extent outstanding options or warrants
are exercised, there will be further dilution to new investors. For a
description of our equity plans, please see "Management -- Employee Benefit
Plans" and Notes 9 and 13 of Notes to Consolidated Financial Statements.
22
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. The consolidated statement
of operations data for the period from June 6, 1996 (inception) to March 31,
1997, the fiscal years ended March 31, 1998 and 1999 and for the nine months
ended December 31, 1999 and the consolidated balance sheet data at March 31,
1997, 1998 and 1999 and at December 31, 1999 are derived from our consolidated
financial statements included elsewhere in this prospectus. The statement of
operations data for the nine months ended December 31, 1998 is derived from
unaudited consolidated financial statements included elsewhere in this
prospectus and, in the opinion of our management, includes all adjustments,
consisting only of normal recurring adjustments, that are necessary for a fair
presentation of the results of operations for this period. The historical
results are not necessarily indicative of the operating results to be expected
in the future. Catalogics Software Corporation our predecessor corporation, had
assets of $8,177, $6,154 and $5,952 at March 31, 1995 and 1996 and May 31, 1996,
respectively. The net loss was none, $(2,828) and $(337) for the years ended
March 31, 1995 and 1996 and the two months ended May 31, 1996, respectively.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
PERIOD FROM INCEPTION MARCH 31, DECEMBER 31,
(JUNE 6, 1996) TO ----------------- ------------------
MARCH 31, 1997 1998 1999 1998 1999
--------------------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License........................................ $ 50 $ 170 $ 1,656 $ 970 $ 5,181
Services....................................... 5 -- 1,788 1,010 4,259
------- ------- ------- ------- --------
Total revenues............................... 55 170 3,444 1,980 9,440
Cost of revenues:
License........................................ 3 9 184 118 259
Services....................................... -- -- 876 481 5,038
Services -- related party...................... -- 51 303 153 135
------- ------- ------- ------- --------
Total cost of revenues....................... 3 60 1,363 752 5,432
------- ------- ------- ------- --------
Gross profit..................................... 52 110 2,081 1,228 4,008
Operating expenses:
Research and development....................... 163 1,947 3,887 2,495 3,603
Sales and marketing............................ 62 1,055 4,403 2,670 8,947
General and administrative..................... 77 293 1,380 857 2,782
Amortization of development agreement.......... -- -- -- -- 472
Amortization of deferred compensation.......... 6 3 47 22 590
------- ------- ------- ------- --------
Total operating expenses..................... 308 3,298 9,717 6,044 (16,394)
------- ------- ------- ------- --------
Loss from operations............................. (256) (3,188) (7,636) (4,816) (12,386)
Interest and other income, net................... 5 87 99 95 319
------- ------- ------- ------- --------
Net loss before taxes............................ (251) (3,101) (7,537) (4,721) (12,067)
Provision for income taxes....................... -- -- -- -- 50
------- ------- ------- ------- --------
Net loss......................................... $ (251) $(3,101) $(7,537) $(4,721) $(12,117)
Deemed dividend on Series E convertible preferred
stock.......................................... -- -- -- -- 925
Net loss applicable to common stockholders....... (251) (3,101) (7,537) (4,721) (13,042)
======= ======= ======= ======= ========
Basic and diluted net loss per share applicable
to common stockholders......................... $ (0.15) $ (0.91) $ (1.58) $ (1.05) $ (2.47)
Shares used in computing basic and diluted net
loss per share applicable to common
stockholders................................... 1,634 3,425 4,782 4,479 5,270
Pro forma basic and diluted net loss per share
applicable to common stockholders.............. $ (0.44) $ (0.58)
Shares used in computing pro forma basic and
diluted net loss per share applicable to common
stockholders................................... 17,282 22,455
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
---------------------- DECEMBER 31,
1997 1998 1999 1999
---- ------ ------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $788 $ 504 $ -- $14,124
Working capital (deficit)................................... 770 422 (639) 10,851
Total assets................................................ 983 1,357 3,193 27,120
Total stockholders' equity.................................. 957 856 736 19,647
</TABLE>
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the notes to those statements that appear
elsewhere in this prospectus.
OVERVIEW
Selectica is a leading provider of Internet selling system software and
services that enable companies to efficiently sell complex products and services
over intranets, extranets and the Internet. Our ACE suite of software products
is a comprehensive Internet selling system solution that gives sellers the
ability to manage the sales process in order to facilitate the conversion of
prospective buyers into customers. Our Internet selling system solution allows
companies to use the Internet platform to deploy a selling application to many
points of contact, including personal computers, in-store kiosks and mobile
devices, while offering customers, partners and employees an interface
customized to their specific needs.
History
Selectica was incorporated in June 1996 and acquired the technology and
assets of Catalogics Software Corporation, a development stage Internet software
company founded by Dr. Sanjay Mittal, a co-founder of Selectica, in July 1996.
Selectica was a development-stage company until October 1997. In October 1997,
we released our first version of ACE, which consisted of the ACE Enterprise
Server and ACE Studio. During the following year, we primarily licensed our
products to businesses for pilot programs that involved limited deployments.
Beginning in calendar 1999, we licensed our products for larger scale
deployments and continued to develop and market our ACE suite of products,
expanding our product offering with ACE Enterprise Manager, ACE Quoter and ACE
Mobile. In November 1999, we released the current version of ACE, ACE 4.0, and
expanded our product offering with ACE Repository and ACE Connector.
In addition to our engineering and professional services employees based in
San Jose, California, we provide professional services and perform quality
assurance testing with the assistance of Selectica Configurators India Private
Limited, or Selectica India, a corporation located in Pune, India. Selectica
India was formed in June 1997. From June 1997 through July 1999, we purchased
services from Selectica India on an arms-length contract basis. In July 1999, we
completed an agreement to acquire a 99.9% ownership of Selectica India, making
it a subsidiary of Selectica, Inc. As of December 31, 1999, there were 101
employees of Selectica India. Because we believe that Selectica India provides
us with a strategic advantage in advancing our product development and
consulting activities, we plan to continue expanding this operation. See
"Related Party Transactions -- Selectica Configurators India Pvt. Ltd."
Revenues
We derive revenues from two sources: (1) the licenses of our software
products and (2) services we provide to our customers, which include
professional services, maintenance and training services. The amount of the
license fee charged to our customers is generally based on the number of
licensed products, on a per server and per user basis, and occasionally on an
enterprise or site license basis. Many customers purchase professional services,
which are billed by us either on a fixed fee basis or on a time and materials
basis. To date, customers have primarily purchased these services on a fixed fee
basis. Customers who license the software generally also purchase maintenance
contracts that
24
<PAGE> 27
typically cover a 12-month period. We also offer training services which are
billed on a per student or per class basis.
Our revenues are derived from licenses for its software and related
services, which include implementation and integration, technical support,
training and consulting. We sell licenses and services both together and
separately. For contracts with multiple elements, and for which vendor-specific
objective evidence of fair value for the undelivered elements exists, the we
recognize revenues for the delivered elements based on the residual contract
value as prescribed by Statement of Position No. 98-9, "Modification of SOP No.
97-2 with Respect to Certain Transactions."
License and services revenues on contracts involving significant
implementation, customization or services which are essential to the
functionality of the software are recognized over the period of each engagement,
primarily using the percentage-of-completion method. In cases where license fees
or service payments are contingent on acceptance, we defer recognition of
revenues until the acceptance criteria are met. We use output measures
(milestones) to determine progress to completion for license and service
agreements that contain customer acceptance based on milestone achievements. For
all other license and service agreements accounted for using the
percentage-of-completion method, we determine progress to completion using input
measure based on labor hours earned. We classify revenues for these arrangements
as license revenues and services revenues based on its estimates of fair value
for each element and recognizes the revenues based on the percentage-of-
completion ratio for the arrangement. A provision for estimated losses on
engagements is made in the period in which the loss becomes probable and can be
reasonably estimated.
License revenues are recognized when persuasive evidence of an agreement
exists, delivery of the product has occurred, no significant obligations with
regard to implementation, customization or services, the fee is fixed or
determinable and collectibility is probable. Provisions for sales returns are
provided at the time of revenue recognition based on estimated returns. We have
not incurred material charges for product returns to date.
Services revenues primarily comprises revenue from consulting fees,
maintenance contracts and training. Services revenues from consulting and
training is recognized as the services are performed.
Maintenance contracts include the right to unspecified upgrades and ongoing
support. Maintenance revenues are deferred and recognized on a straight-line
basis, as services revenues, over the life of the related contract, which is
typically one year. In addition, because we rely on a limited number of
customers, the timing of customer acceptance or milestone achievement from, or
the amount of services we provide to a single customer can significantly affect
our operating results. For example, our services revenues declined significantly
in the quarter ended June 30, 1999 due to the completion of services under a
contract with BMW of North America, one of our significant customers. Our
license and services revenues increased significantly in the quarters ended
September 30, 1999 and December 31, 1999 generally due to the addition of two
new customers in each respective quarter.
Customer billing occurs in accordance with contract terms. Customer
advances and amounts billed to customers in excess of revenue recognized are
recorded as deferred revenue. Amounts recognized as revenue in advance of
billing (typically under percentage-of-completion accounting) are recorded as
unbilled receivables.
25
<PAGE> 28
Factors Affecting Operating Results
A relatively small number of customers account for a significant portion of
our total revenues. For the fiscal year ended March 31, 1998, revenue from
Hewlett-Packard--Germany, Ascend Communications, InterVoice and Insight
accounted for 45%, 27%, 16% and 12% of our total revenues, respectively. For the
fiscal year ended March 31, 1999, revenue from BMW of North America and Olicom
accounted for 60% and 10% of our revenues, respectively. For the nine months
ended December 31, 1999, revenue from Aspect Communications, Fireman's Fund and
3Com Corporation accounted for 15%, 13% and 13% of our revenues, respectively.
We expect that revenues from a limited number of customers will continue to
account for a large percentage of total revenues in future quarters.
To date, our revenues have been predominantly attributable to sales in the
United States. We plan to expand our international operations significantly,
because we believe international markets represent a significant growth
opportunity. Consequently, we expect that international revenues will increase
as a percentage of total revenues in the future. The expansion of our
international operations will be subject to a variety of risks that could
significantly harm our business and operating results. As our international
sales and operations expand, we anticipate that our exposure to foreign currency
fluctuations will increase because we have not adopted a hedging program to
protect us from risks associated with foreign currency fluctuations.
We have a limited operating history upon which we may be evaluated. We have
incurred significant losses since inception and, as of December 31, 1999, we had
an accumulated deficit of approximately $24.4 million. We believe our success
depends on the continued growth of our customer base and the development of the
emerging Internet selling system market. Accordingly, we intend to continue to
invest heavily in sales and marketing and research and development. Furthermore,
we expect to continue to incur substantial operating losses for the foreseeable
future.
In view of the rapidly changing nature of our business and our limited
operating history, we believe that period-to-period comparisons of revenues and
operating results are not necessarily meaningful and should not be relied upon
as indications of future performance. Our limited operating history makes it
difficult to forecast future operating results. Additionally, despite our recent
revenue growth, we do not believe that historical growth rates are necessarily
sustainable or indicative of future growth and we cannot be certain that
revenues will increase. Even if we were to achieve profitability in any period,
we may not be able to sustain or increase profitability on a quarterly or annual
basis.
Equity Transactions
During October 1999, we issued 1,505,702 shares of Series E Preferred Stock
to various investors, including parties related to us, for gross proceeds of
$6,597,986. Of this amount, $23,000 related to the exercise of warrants to
purchase 5,250 shares of Series E Preferred Stock issued in connection with the
convertible debt financing in May 1999. We issued 1,500,452 of these shares at
$4.382 per share while the deemed fair value of such preferred stock at that
date was approximately $7.70. As a result, in the third quarter of fiscal 2000
we recorded $5.0 million of charges related to the difference between the actual
issuance price of the preferred stock and the deemed fair value. Of this amount,
$266,000 was accounted for as compensation expense, $925,000 was accounted for
as a dividend to stockholders in the third quarter of fiscal 2000 and the
remaining amount will be amortized over an approximate two-year period in
connection with a development agreement with one of the investors. As of
December 31, 1999, approximately $472,000 had been amortized.
26
<PAGE> 29
In September 1999, we entered into a porting agreement with Intel, one of
our investors, whereby we will work with Intel to port the current suite of ACE
products to additional platforms. In connection with the porting agreement, we
issued warrants to purchase 57,000 shares of Series E convertible Preferred
Stock. The warrants were issued in December 1999 and were valued using the
Black-Scholes valuation model. The value of the warrants is approximately
$381,000 and this amount will be expensed over the remaining life of the porting
agreement, which will be approximately two years.
On January 7, 2000, in connection with a license agreement, we issued a
warrant to purchase 800,000 shares of common stock to Cisco, one of our
customers, for $800,000. The warrant is fully vested, has a life of two years,
and an exercise price per share of the lesser of $13 or the initial public
offering price of this offering. The value of the warrant is approximately $3.7
million and was determined based upon a Black-Scholes valuation model. The
warrant value will be recognized as the related license revenue is recognized.
RESULTS OF OPERATIONS
Selectica reports financial results on a fiscal year basis ending March 31.
Therefore, the following references to years relate to our fiscal years. Fiscal
1997 includes only ten months of financial results during which we had no
significant revenue while expenditures were of a start-up nature related to
research and development of our products. All revenue and expense categories for
fiscal 1998 have increased due to a full year of revenue and expenses and
increased activities as we introduced and expanded our initial product
offerings. Therefore, fiscal 1997 and 1998 are not comparable periods.
NINE MONTHS ENDED DECEMBER 31, 1998 AND 1999
Revenues
Our revenues increased from $2.0 million in the nine months ended December
31, 1998 to $9.4 million in the nine months ended December 31, 1999. Revenues in
the nine months ended December 31, 1998 were primarily attributable to a single
customer, BMW of North America.
License. License revenues increased from $970,000 in the nine months ended
December 31, 1998 to $5.2 million in the nine months ended December 31, 1999. We
attribute the increase in license revenues from the nine months ended December
31, 1998 to the nine months ended December 31, 1999 to growth in our customer
base driven by growth in our direct sales force.
Services. Services revenues increased from $1.0 million in the nine months
ended December 31, 1998 to $4.3 million in the nine months ended December 31,
1999. Services revenues primarily consisted of professional services revenues in
the nine months ended December 31, 1998 and 1999. We attribute the increase in
services revenues to the increase in professional services related to the growth
in our customer base.
Cost of Revenues
Cost of revenues increased from $752,000 in the nine months ended December
31, 1998 to $5.4 million in the nine months ended December 31, 1999.
License. Cost of license revenues consists primarily of the costs to
deliver our software products to our customers, including documentation,
shipping and other data transmission costs. Cost of license revenues increased
from $118,000 in the nine months ended December 31, 1998 to $259,000 in the nine
months ended December 31, 1999, consistent with the increase in license
revenues, and representing 12% and 5% of license revenues, respectively.
27
<PAGE> 30
Services, including Related Party. Cost of services revenues includes
salaries and related expenses of our professional services organization and an
allocation of our facilities, overhead and depreciation expenses. For the period
from inception through June 30, 1999, cost of services revenues excludes
expenses of our professional services organization in Pune, India, which are
included in cost of services revenues-related party. Cost of services revenues,
including related party amounts, increased from $634,000 in the nine months
ended December 31, 1998 to $5.2 million in the nine months ended December 31,
1999, representing 63% and 121% of professional services revenues, respectively.
The increase in cost of services revenues was due primarily to increased
personnel in our customer support and consulting organizations to support the
increase in the amount of professional services provided to our customers. Since
services revenues have substantially lower margins than license revenues, this
expansion would reduce our gross margins if our license revenues were not to
increase significantly. We expect cost of services revenues as a percentage of
services revenues to vary from period to period depending on the mix of services
we provide, whether the services are performed by our in-house staff or third
party consultant, and the overall utilization rates of our professional services
organization.
Gross Profit
Gross profit increased from $1.2 million for the nine months ended December
31, 1998 to $4.0 million for the nine months ended December 31, 1999. Gross
profit represented 62% and 42% of total revenues, respectively.
We expect gross margin to fluctuate as a result of continued variation in
the mix of our revenue between high margin license revenues and lower margin
services revenues.
Operating Expenses
Research and Development. Our research and development costs primarily
consist of salaries and related costs of our engineering organization and an
allocation of facilities, overhead and depreciation costs. Research and
development costs increased from $2.5 million in the nine months ended December
31, 1998 to $3.6 million in the nine months ended December 31, 1999. The
increase in research and development costs was primarily due to an increase of
$852,000 from the hiring of additional technical personnel and the payment of a
$544,000 bonus to our Chief Technology Officer. We believe that it is essential
for us to continue to enhance our product offerings. Accordingly, we anticipate
our research and development expenses will increase in the future.
Sales and Marketing. Our sales and marketing expenses primarily consist of
salaries and related costs for our sales and marketing organization, sales
commissions, expenses for trade shows, public relations, collateral sales
materials, advertising and an allocation of facilities, overhead and
depreciation costs. Sales and marketing expenses increased from $2.7 million in
the nine months ended December 31, 1998 to $8.9 million in the nine months ended
December 31, 1999. The increase in sales and marketing expenses is primarily
attributable to increases in payroll expenses of $2.3 million from the hiring of
additional sales and marketing personnel, including our Vice President of Sales,
Americas and Vice President of Marketing, and $1.2 million from increased sales
commissions resulting from higher revenues. We intend to increase sales and
marketing expenses to support our increased marketing efforts, expand our direct
sales force and open additional sales offices.
General and Administrative. Our general and administrative expenses include
compensation for administrative personnel, fees for outside professional
advisors and an allocation of overhead costs. General and administrative
expenses increased from $857,000 in the nine months ended December 31, 1998 to
$2.8 million in the nine months ended December 31, 1999. The increase in
28
<PAGE> 31
general and administrative expenses primarily resulted from a $699,000 increase
in payroll expenses due to hiring additional administrative and support
personnel, including our Chief Financial Officer, and a $472,000 increase in
legal and accounting services to support our overall growth. We expect that
general and administrative expenses will continue to increase as we expand our
operations and incur additional costs related to being a public company.
Amortization of Development Agreement. In connection with a development
agreement entered into with an investor, we recorded approximately $3.8 million
of cheap stock valuation in the third fiscal quarter of 2000. This amount will
be amortized over a two year period. Amortization of the development agreement
of $472,000 was recorded in the nine months ended December 31, 1999 and is
consistent with the level of efforts in the areas of marketing and research and
development.
Amortization of Deferred Compensation. In connection with the granting of
options to purchase our common stock to certain employees, directors and
consultants, we recorded deferred compensation representing the difference
between the exercise price of options granted and the deemed fair value of our
common stock at the time of grant. Amortization of deferred compensation
increased from $22,000 in the nine months ended December 31, 1998 to $590,000 in
the nine months ended December 31, 1999. As of December 31, 1999, we had a total
net deferred compensation of $6,011,456. We anticipate the amortization of
stock-based compensation will be approximately $1.7 million, $1.6 million, $1.5
million for the years ended March 31, 2001, 2002, and 2003, respectively. In
addition, under Indian law, options granted to employees who are Indian
nationals may not have an exercise price that exceeds 85% of the fair market
value of the underlying shares. We expect that, in order to comply with Indian
law, we will continue to make option grants below fair market value, and as a
result, we will continue to incur deferred compensation expense.
Interest and Other Income, Net
Interest and other income, net primarily consists of interest earned on
cash balances and stockholders notes receivable, offset by interest expense
related to convertible debt issued in the first quarter of fiscal 2000 and
converted in the same quarter. Interest and other income, net increased from
$95,000 for the nine months ended December 31, 1998 to $319,000 in the nine
months ended December 31, 1999.
Provision for Income Taxes
We have recorded a tax provision of $50,000 for the nine months ended
December 31, 1999. The provision for income taxes consists primarily of state
income taxes and foreign taxes.
FASB Statement No. 109 provides for the recognition of deferred tax assets
if realization of such assets is more likely than not. Based upon the weight of
available evidence, which includes our historical operating performance and the
reported cumulative net losses in all prior years, we have provided a full
valuation allowance against its net deferred tax assets. We intend to evaluate
the realizability of the deferred tax assets on a quarterly basis.
FISCAL YEARS ENDED MARCH 31, 1997, 1998 AND 1999
Revenues
Total revenues increased from $170,000 in fiscal 1998 to $3.4 million in
fiscal 1999. We had no material revenues in fiscal 1997.
License. License revenues increased from $170,000 in fiscal 1998 to $1.7
million in fiscal 1999. We attribute the increase in license revenues from
fiscal 1998 to fiscal 1999 primarily to growth in
29
<PAGE> 32
our customer base and an increase in the average contract amount of license
agreements, each of which was driven by growth in our direct sales force, and,
to a lesser extent, the release of our new ACE Enterprise Manager, ACE Quoter
and ACE Mobile products and new versions of existing products.
Services. We did not recognize any services revenues in fiscal 1998.
Services revenues were $1.8 million in fiscal 1999. Services revenues in fiscal
1999 were attributable to our initial customers electing to utilize our
professional services organization for product deployment, maintenance, support
and training.
Cost of Revenues
Cost of revenues increased from $60,000 in fiscal 1998 to $1.4 million in
fiscal 1999. Cost of revenues was not material in fiscal 1997.
License. Cost of license revenues increased from $9,000 in fiscal 1998 to
$184,000 in fiscal 1999, consistent with the increase in license revenues and
representing 5% and 11% of license revenues, respectively.
Services. Cost of services revenues, including related party amounts, were
$51,000 in fiscal 1998. Cost of services revenues, including related party
amounts, were $1.2 million in fiscal 1999, representing 66% of services
revenues. Cost of services revenues in fiscal 1999 is primarily attributable to
the development of our customer support and consulting organizations.
Operating Expenses
Research and Development. Research and development expenses increased from
$163,000 in fiscal 1997 to $1.9 million in fiscal 1998 and to $3.9 million in
fiscal 1999. The increase in research and development expenses from fiscal 1997
to fiscal 1998 were primarily due to a $1.2 million increase in salaries expense
from growth in engineering personnel. The increase in research and development
expenses from fiscal 1998 to fiscal 1999 was primarily due to a $1.3 million
increase in salaries expense from growth in engineering personnel. To date, all
software development costs have been expensed in the period incurred.
Sales and Marketing. Sales and marketing expenses increased from $62,000 in
fiscal 1997 to $1.1 million in fiscal 1998 and to $4.4 million in fiscal 1999.
The increase in sales and marketing expenses from fiscal 1997 to fiscal 1998 was
due primarily to a $539,000 increase in salaries expense from the growth in our
sales and marketing organizations and a $137,000 increase from the expansion of
our marketing programs, including increased marketing expenses for trade shows
and travel. The increase in sales and marketing expenses from fiscal 1998 to
fiscal 1999 was due primarily to a $2.0 million increase in salaries expense
from the growth in our sales and marketing organizations, and a $633,000
increase from the expansion of our marketing programs, including increased
marketing expenses for trade shows and travel.
General and Administrative. General and administrative expenses increased
from $77,000 in fiscal 1997 to $293,000 in fiscal 1998 and to $1.4 million in
fiscal 1999. The increase in general and administrative expenses from fiscal
1997 to fiscal 1998 primarily resulted from a $106,000 increase in payroll
expenses due to hiring additional administrative and support personnel. The
increase in general and administrative expenses from fiscal 1998 to fiscal 1999
primarily resulted from a $503,000 increase in payroll expenses due to hiring
additional administrative and support personnel.
30
<PAGE> 33
Interest and Other Income, Net
Interest and other income, net consists primarily of interest earned on our
cash, cash equivalents and short-term investments offset by interest expense
incurred with respect to our line of credit obligation. Interest and other
income, net increased from $87,000 in fiscal 1998 to $99,000 in fiscal 1999 and
was immaterial in fiscal 1997. The increase in interest income and other income,
net relates primarily to interest earned on proceeds from our equity financing
in June 1998.
Provision for Income Taxes
No provision for federal or state income taxes has been recorded because we
experienced net losses through fiscal 1999.
31
<PAGE> 34
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, selected data
from our consolidated statements of operations. The data has been derived from
our unaudited consolidated financial statements, and, in the opinion of our
management, include all adjustments, consisting only of normal recurring
adjustments, that are necessary for a fair presentation of the results of
operations for these periods. This unaudited information should be read in
conjunction with the consolidated financial statements and notes included
elsewhere in this prospectus. The operating results in any quarter are not
necessarily indicative of the results that may be expected for any future
period. We have incurred losses in each quarter since inception and expect to
continue to incur losses for the foreseeable future.
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1999 1999 1999 1999
-------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License.......................................... $ 164 $ 243 $ 563 $ 686 $ 708 $ 2,125 2,348
Services......................................... 219 108 683 778 493 1,309 2,457
------- ------- ------- ------- ------- ------- -------
Total revenues................................. 383 351 1,246 1,464 1,201 3,434 4,805
Cost of revenues:
License.......................................... 28 39 51 66 52 90 117
Services......................................... 93 118 270 395 1,064 2,069 1,905
Services -- related party........................ 50 50 53 150 135 -- --
------- ------- ------- ------- ------- ------- -------
Total cost of revenues......................... 171 207 374 611 1,251 2,159 2,022
------- ------- ------- ------- ------- ------- -------
Gross profit (loss)............................ 212 144 872 853 (50) 1,275 2,783
Operating expenses:
Research and development......................... 594 827 1,074 1,392 1,474 753 1,376
Sales and marketing.............................. 781 775 1,114 1,733 1,869 2,920 4,158
General and administrative....................... 212 293 352 523 497 1,214 1,071
Amortization of development agreement............ -- -- -- -- -- -- 472
Amortization of deferred compensation............ -- 1 21 25 27 94 469
------- ------- ------- ------- ------- ------- -------
Total operating expenses....................... 1,587 1,896 2,561 3,673 3,867 4,981 7,546
------- ------- ------- ------- ------- ------- -------
Loss from operations............................... (1,375) (1,752) (1,689) (2,820) (3,917) (3,706) (4,763)
Interest and other income (expense), net........... 3 60 31 5 (47) 145 221
------- ------- ------- ------- ------- ------- -------
Net loss before taxes.............................. (1,372) (1,692) (1,658) (2,815) (3,964) (3,561) (4,542)
Provision for income taxes......................... -- -- -- -- 26 24 --
------- ------- ------- ------- ------- ------- -------
Net loss........................................... (1,372) (1,692) (1,658) (2,815) (3,990) (3,585) (4,542)
Deemed dividend related to Series E convertible
preferred stock.................................. -- -- -- -- -- -- 925
------- ------- ------- ------- ------- ------- -------
Net loss applicable to common stockholders......... $(1,372) $(1,692) $(1,658) $(2,815) $(3,990) $(3,585) $(5,467)
======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
License.......................................... 43% 69% 45% 47% 59% 62% 49%
Services......................................... 57 31 55 53 41 38 51
------- ------- ------- ------- ------- ------- -------
Total revenues................................. 100 100 100 100 100 100 100
Cost of revenues:
License.......................................... 7 11 4 5 4 3 2
Services......................................... 24 34 22 27 89 60 40
Services -- related party........................ 13 14 4 10 11 -- --
------- ------- ------- ------- ------- ------- -------
Total cost of revenues......................... 44 59 30 42 104 63 42
------- ------- ------- ------- ------- ------- -------
Gross profit (loss)............................ 56 41 70 58 (4) 37 58
Operating expenses:
Research and development......................... 155 236 86 95 123 22 29
Sales and marketing.............................. 204 221 89 118 156 85 87
General and administrative....................... 55 83 28 36 41 35 22
Amortization of development agreement............ -- -- -- -- -- -- 10
Amortization of deferred compensation............ -- -- 2 2 2 3 10
------- ------- ------- ------- ------- ------- -------
Total operating expenses....................... 414 540 205 251 322 145 158
------- ------- ------- ------- ------- ------- -------
Loss from operations............................... (358) (499) (135) (193) (326) (108) (100)
Interest and other income (expense), net........... 1 17 2 -- (4) 4 5
------- ------- ------- ------- ------- ------- -------
Net loss before taxes.............................. (357) (482) (133) (193) (330) (104) (95)
Provision for income taxes......................... -- -- -- -- 2 1 --
------- ------- ------- ------- ------- ------- -------
Net loss........................................... (357) (482) (133) (193) (332) (105) (95)
Deemed dividend related to Series E convertible
preferred stock.................................. -- -- -- -- -- -- (19)
------- ------- ------- ------- ------- ------- -------
Net loss applicable to common stockholders......... (357)% (482)% (133)% (193)% (332)% (105)% (114)%
======= ======= ======= ======= ======= ======= =======
</TABLE>
32
<PAGE> 35
Total revenues declined significantly in the quarter ended June 30, 1999
due to the completion of a services contract with a single customer, and
increased significantly in the quarter ended September 30, 1999 primarily as a
result of the addition of two new customers. Revenues for the quarter ended
December 31, 1999 increased by $1.4 million primarily due to the increase in the
number of customers during the quarter, including two customers which, in the
aggregate, comprised approximately 41% of total revenues for the quarter. We
experience significant variability in license and services revenues from quarter
to quarter due to our dependence on a limited number of customers, the large
transaction size of contracts with these customers, the timing of customer
acceptance and the timing of milestone achievement under contracts with
recognition of revenues on a percentage-of-completion basis. Gross profit has
also fluctuated as a result of increased investment in the development of our
customer support and consulting organizations to support the increase in
professional services provided to our customers. Cost of services revenues are
affected by our allocation of overhead costs by department based upon headcount.
As headcount in our professional services organization has increased as a
percentage of overall headcount from fiscal 1999 through the third quarter of
fiscal 2000, an increasing percentage of overhead costs were allocated to cost
of services revenues, resulting in a corresponding reduction in the allocation
of overhead costs to research and development, sales and marketing and general
and administrative expenses in those quarters. We expect gross margin to
continue to fluctuate as a result of continued variation in the mix of our
revenues between high margin license revenues and lower margin services
revenues.
Our operating expenses have increased significantly from inception through
the first nine months of fiscal 2000 as we have transitioned from a development
stage to the commercialization of our services. Research and development
expenses fluctuated from the end of fiscal 1999 through the first three quarters
of fiscal 2000, with an increase in the quarter ended June 30, 1999 as a result
of the payment of a $544,000 bonus to our Chief Technology Officer, offset by a
reduction in the allocation of overhead costs. Sales and marketing expenses
increased significantly during the second and third quarters of fiscal 2000 as a
result of the additional hiring of sales and marketing personnel, including our
Vice President of Sales, Americas and Vice President of Marketing, increased
sales commissions resulting from higher revenues and increased advertising and
promotion expenses, offset by a reduction in the allocation of overhead costs.
General and administrative expenses increased significantly during the second
and third quarters of fiscal 2000 as a result of an increase in payroll expenses
due to hiring additional administrative and support personnel and an increase in
legal and accounting services, offset by a reduction in the allocation of
overhead costs.
We plan to increase our operating expenses as we continue to increase sales
and marketing operations, expand our professional services organization and
continue to fund research and development. Consequently, our losses will
increase in the future. Although we have experienced revenue growth in recent
periods, we cannot be certain that such growth will continue at its current rate
or at all. If our revenue growth is slower than we anticipate or our operating
expenses exceed our expectations, our losses will be significantly greater.
During October and November 1999, we issued a total of 1,505,702 shares of
Series E Preferred Stock to various investors, including 261,981 shares to
related parties and a member of our board of directors, of which 5,250 shares
were a result of exercise of warrants to purchase stock, 79,871 shares to our
officers, 22,820 shares to unrelated parties and 1,141,030 shares to an investor
who will work with us to port the current suite of ACE products to additional
platforms. Gross proceeds from these issuances were $6,597,986. Excluding those
related to warrant exercises, the shares were issued at $4.382 per share while
the deemed fair value of our preferred stock at that date was approximately
$7.70, 110% of the deemed fair value of our common stock on the date of the
closing of Series E convertible Preferred Stock. We recorded approximately $5.0
million of charges related to cheap stock valuation in the third quarter of
fiscal 2000. Of this amount, approximately $925,000 was
33
<PAGE> 36
accounted for as a dividend to stockholders, approximately $190,000 as sales and
marketing compensation expense, and approximately $76,000 as general and
administrative compensation expense. The remaining $3.8 million will be
amortized over a two-year period in connection with a development agreement with
one of our investors. Amortization of the development agreement in the amount of
$472,000 was recorded in the nine months ended December 31, 1999, consistent
with the level of our efforts in the areas of marketing and research and
development.
In the past, our quarterly operating results have varied significantly, and
we expect these fluctuations to continue. Future operating results may vary
depending on a number of factors, many of which are outside of our control.
In the short term, we expect our quarterly revenues to be significantly
dependent on the sale of a small number of relatively large orders for our
products and services. In addition, our products and services generally have a
long sales cycle. As a result, our quarterly revenues may fluctuate
significantly if we are unable to complete one or more substantial sales in any
given quarter. In many cases, we recognize revenues from licenses and services
on a percentage-of-completion basis. Deployment of our products requires a
substantial commitment of resources by our customers or their consultants over
an extended period of time. The time required to complete a deployment may vary
from customer to customer and may be protracted due to unforeseen circumstances.
Our ability to recognize these revenues thus may be delayed if we are unable to
meet milestones on a timely basis. We intend to significantly increase our
operating expenses for the foreseeable future. Because these expenses are
relatively fixed in the near term, any shortfall in anticipated revenues could
cause our quarterly operating results to fall below anticipated levels.
We may also experience seasonality in revenues. For example, our quarterly
results may fluctuate based upon our customers' calendar year budgeting cycles.
These seasonal variations may lead to fluctuations in our quarterly revenues and
operating results.
Based upon the foregoing, we believe that period-to-period comparisons of
our results of operations are not necessarily meaningful and that such
comparisons should not be relied upon as indications of future performance. In
some future quarter, our operating results may be below the expectations of
public market analysts and investors, which could cause volatility or a decline
in the price of our common stock.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations since inception primarily through the private
placement of our equity securities and convertible notes through which we have
raised net proceeds of approximately $37.1 million as of December 31, 1999. At
December 31, 1999, our principal sources of liquidity included approximately
$14.1 million of cash and cash equivalents.
Cash used in operations was $6.6 million in fiscal 1999 primarily as a
result of our net losses and increases in accounts receivable corresponding to
increased revenues, which were partially offset by an increase of $902,000 in
deferred revenues, an increase of $484,000 in accounts payable and, to a lesser
degree, increases in accrued liabilities and accrued payroll and related
liabilities. Cash used in operations for the nine months ended December 31, 1999
was $8.2 million primarily as a result of our net loss and increases in accounts
receivable corresponding to increased revenues, increases in other assets
related to costs of our initial public offering, partially offset by a $2.7
million increase in deferred revenues, a $1.7 million increase in accrued
liabilities and a $699,000 increase in accrued payroll and related liabilities.
Cash used in investing activities was $731,000 in fiscal 1999 primarily as
a result of investments in computer equipment and computer software to support
increased headcount. Cash used in
34
<PAGE> 37
investing activities for the nine months ended December 31, 1999 was $3.5
million primarily as a result of investments in computer equipment and computer
software to support our increased headcount.
Net cash provided by financing activities was $7.1 million in fiscal 1999
and $25.8 million for the nine months ended December 31, 1999. Net cash from
financing activities resulted primarily from the sale of preferred stock and
common stock. For the nine months ended December 31, 1999, cash provided by
financing was also due to the issuance of $1.0 million of convertible notes,
partially offset by common stock repurchases totaling $456,000.
We expect to experience significant growth in our operating expenses for
the foreseeable future in order to execute our business plan. As a result, we
anticipate that operating expenses and planned capital expenditures will
constitute a material use of our cash resources. We currently anticipate that
the net proceeds from this offering, together with our current cash, cash
equivalent and short-term investments, will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at least
the next 12 months. However, we may need to raise additional funds sooner to
fund more rapid expansion, to develop new or enhance existing services or
products, to respond to competitive pressures or to acquire complementary
products, businesses or technologies. If adequate funds are not available on
acceptable terms, our business and operating results could be harmed.
YEAR 2000 COMPLIANCE
Background of Year 2000 Issues
The "year 2000 issue" refers generally to the problems that some software
may have in determining the correct date as a result of the millennium change.
We define "Year 2000 Ready" to mean that testing has revealed that the
electronic components at issue will recognize and properly perform date
sensitive functions into and beyond the year 2000. Software with date sensitive
information that is not Year 2000 Ready may not be able to distinguish whether
"00" means 1900 or 2000, which may result in system failures or the creation of
erroneous results. We are subject to potential year 2000 issues affecting our
products, our internal systems and the systems of our suppliers and customers,
any of which could harm our business.
State of Readiness
Our ACE products are coded Year 2000 Ready and are designed to be Year 2000
Ready upon implementation provided they are configured and used in accordance
with our specifications, and provided that the underlying operating systems and
any other software used with the product are also Year 2000 Ready. Substantial
testing of the ACE suite of products to date has confirmed that there are no
year 2000 issues of which we are currently aware.
However, we have not tested independently installed third-party software
that may be integrated within our customers' systems. Such integrated software
could be susceptible to year 2000 issues and the failure of our customers'
systems to be Year 2000 Ready could impede the success of our applications in
their systems. Accordingly, any year 2000 issues inherent within our software or
within systems which contain our software could result in harm to our business
by way of delay or loss of revenues, diversion of development resources, damage
to our reputation, or increased service or warranty costs, any of which could
harm our business. To date, we have not encountered any material year 2000
issues with respect to our ACE suite of products.
35
<PAGE> 38
Risks Related to Year 2000 Issues
A significant majority of our license agreements with our customers
represent and warrant that our product is Year 2000 Ready. If our products are
not Year 2000 Ready, we could incur unanticipated expenses to remedy any
problems, which could significantly harm our business and operating results. To
date we have not experienced any Year 2000 issues with regards to our products.
Our current or future customers may incur significant expenses to achieve
year 2000 readiness. If our customers are not Year 2000 Ready, they may
experience material costs to remedy problems, they may face litigation costs and
they may delay purchases or implementation of our products. Year 2000 issues
could reduce or eliminate the budgets that current or potential customers could
have for purchases of our products and services. Also, customers may look to us
to remediate any year 2000 issues associated with their systems. As a result,
our business, financial condition and results of operations could be seriously
harmed.
We have also completed an assessment of our internal systems, including
software and hardware technology utilized by us, as well as third-party vendors
related to our facilities or otherwise related to our business. We have
inventoried our internal software and hardware systems, as well as products and
services provided by vendors. These systems include those related to product
delivery, customer service, internal and external communications, accounting and
payroll. To the extent that we are not able to test the technology provided by
third-party vendors, we are seeking assurances from such vendors that their
systems are Year 2000 Ready. We are not currently aware of any unresolved
material operational issues or costs associated with preparing our internal
systems for the year 2000. However, we may experience material unanticipated
problems and costs caused by undetected errors, defects in the technology used
in our internal systems or by outside occurrences beyond our control.
We have not adopted a formal contingency plan designed to address Year 2000
issues that may result if our products, our internal systems, or the systems of
our suppliers or customers are not Year 2000 Ready.
We have funded our year 2000 remediation efforts from available cash and
have incurred approximately $54,000 in expenses for such efforts. We currently
estimate that we will not incur any substantial expenses for additional year
2000 remediation efforts. Significant uncertainty exists concerning the
potential costs and effects associated with year 2000 compliance. Any year 2000
compliance problem experienced by us or our customers could decrease demand for
our products that could seriously harm our business and operating results.
However, we may experience unanticipated problems and material costs with
unknown year 2000 issues that could harm our business.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued SOP No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP No. 98-1 requires
entities to capitalize certain costs related to internal-use software once
certain criteria have been met. We expect that the adoption of SOP No. 98-1 will
not have a material impact on our financial position, results of operations or
cash flows. We have implemented SOP No. 98-1 in the current fiscal year.
In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of
Start-Up Activities. SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP No. 98-5 is
adopted. We expect that the adoption of SOP No. 98-5 will not have a material
impact on our financial position, results of operations or cash flows. We have
implemented SOP No. 98-5 in the current fiscal year.
36
<PAGE> 39
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes methods for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we do
not currently hold any derivative instruments and do not engage in hedging
activities, we expect that the adoption of SFAS No. 133 will not have a material
impact on our financial position, results of operations or cash flows. We will
be required to implement SFAS No. 133 for the year ending March 31, 2002.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We develop products in the United States and India and sell them worldwide.
As a result, our financial results could be affected by factors such as changes
in foreign currency exchange rates or weak economic conditions in foreign
markets. Since our sales are currently priced in U.S. dollars and are translated
to local currency amounts, a strengthening of the dollar could make our products
less competitive in foreign markets. Interest income is sensitive to changes in
the general level of U.S. interest rates, particularly since our investments are
in short-term instruments calculated at variable rates. Based on the short-term
nature and current levels of our investments, we have concluded that there is no
current material market risk exposure.
37
<PAGE> 40
BUSINESS
OVERVIEW
Selectica is a leading provider of Internet selling system software and
services that enable companies to efficiently sell complex products and services
over intranets, extranets and the Internet. Using our Internet selling system
software, businesses can guide their customers, partners and employees through
the selection, configuration, pricing, quotation and fulfillment processes. Our
Internet selling system solution allows companies to use the Internet platform
to deploy a selling application to many points of contact, including personal
computers, in-store kiosks and mobile devices, while offering customers,
partners and employees an interface customized to their specific needs. Our
product architecture has been designed specifically for the Internet, providing
our solution with scalability, reliability and flexibility. Additionally, our
Internet selling system solution has been developed with an open architecture
that leverages data in existing applications, such as enterprise resource
planning, or ERP, systems, providing an easy-to-install application designed to
reduce deployment time. Our current customers include 3Com, Allied Signal,
Aspect Communications, BMW, Centigram, Cisco, expenseVision, Fireman's Fund,
Fujitsu, Hewlett-Packard, LoanMarket, Redback Networks, RTS Software, Samsung,
Sun Microsystems and Watlow.
INDUSTRY BACKGROUND
Evolution of Electronic Commerce
The Internet is transforming the business environment by increasing
competition and enabling the development of new business models. People,
businesses and other organizations are using the Internet as a platform to
communicate, collaborate, access information and conduct business with greater
speed and efficiency. As a result, business-to-business, business-to-consumer
and business-to-employee interactions are being fundamentally altered. In order
to remain competitive, companies must find innovative ways to sell, increase
efficiencies in the sales cycle and deliver greater customer satisfaction.
Forrester Research estimates that the combined value of business-to-consumer and
business-to-business transactions conducted via the Internet will grow to over
$1.4 trillion by 2003. A growing number of companies are seeking to leverage the
Internet to market and sell their products and services. To date, many
electronic commerce transactions have been simple purchases of products such as
books, compact discs, stocks and toys. We believe, however, that the growth in
electronic commerce will be driven by the ability of companies to complete
complex transactions such as business-to-business electronic commerce and the
sale of consumer products and services involving multiple features, options or
involving custom pricing or service options.
Complexity in Electronic Commerce
Complexity in the selling process manifests itself in many ways. One type
is product complexity, where the product has many possible features, with
factors interacting with one another and with other factors to influence the
performance or manufacturability of that item. Examples of complex products
include networking and telecommunications equipment, automobiles and computers.
A second type of complexity is needs complexity, in which the product or service
itself may be relatively simple, such as an insurance policy or a printer, but
the factors that go into evaluating a specific customer's needs and pairing
those needs with the optimal product or service may be complex. A third type of
complexity comes from flexible or customized pricing and discounting schemes,
including those based on the features of the product.
38
<PAGE> 41
The completion of a complex sales transaction depends on a seller's ability
to identify and satisfy a buyer's needs. In traditional sales, companies rely on
trained salespeople to interact with customers to address customer needs,
explain product features and ultimately consummate the sale. To date, many
electronic commerce web sites have been static collections of non-interactive
content, and have limited ability to assist and guide a customer through a
purchase decision. Using the Internet to complete complex sales transactions,
however, requires businesses to implement a sophisticated system that performs
the traditional role of the salesperson throughout the sales lifecycle of the
products and services. We believe that such a system must also be able to take
advantage of the emergence of the Internet as an application platform.
The Internet as an Emerging Platform for Business Applications
In parallel with the growth of electronic commerce, the Internet is
becoming a technology platform for business application deployment.
Traditionally, companies seeking to improve their operations have implemented
applications such as ERP, customer relationship management, or CRM, or sales
force automation, or SFA, software based on client-server architectures that
require a significant part of the application to be loaded on every user's
computer. With the emergence of the Internet platform, companies are able to
more broadly and cost effectively deploy business applications to customers,
partners and employees and make the most current application and information
immediately available on Internet-enabled devices. We believe that a selling
application based on the Internet platform offers significant advantages over
one based on traditional client-server architectures, such as the ability to be
deployed on a broad range of browser-enabled devices and easy integration with
other Internet-based applications and legacy systems, including those running on
relational database management systems, or RDBMS.
Limitations of Existing Solutions
Until recently, businesses have generally attempted to address the
challenges of complexity in the selling process by building in-house solutions.
These solutions often require significant up-front development costs and lengthy
deployment periods. Furthermore, due to the rapid pace of change in products and
business processes, companies often find it difficult and expensive to maintain
these systems and integrate new functionality and technologies. As a result,
businesses are seeking to implement third-party packaged applications.
Current commercially available software designed to help companies address
the challenges of complexity in the selling process may have one or more of the
following limitations:
- have not been engineered for the Internet platform and as such are not
easily deployed across a broad range of Internet-enabled devices;
- require significant custom programming;
- provide a limited interactive experience; or
- employ application architectures that limit their scalability and
reliability.
We believe that there is a significant opportunity for an Internet selling
system that leverages the Internet platform to enable companies to efficiently
sell complex products and services using a broad range of Internet-enabled
devices.
39
<PAGE> 42
THE SELECTICA SOLUTION
Our ACE suite of products is a comprehensive Internet selling system
solution that enables businesses to easily develop and rapidly deploy an
Internet sales channel that interactively assists their customers, partners and
employees through the selection, configuration, pricing, quoting and fulfillment
processes. Our Internet selling system solution allows companies to use the
Internet platform to deploy a selling application to many points of contact
including personal computers, in-store kiosks and mobile devices while offering
customers, partners and employees an interface customized to meet their specific
needs. ACE is built using Java technology and utilizes a multi-threaded
architecture, which is an application server design that manages a server to
reduce the amount of memory used to support new users as they make connections
to the server, to rapidly deploy, without custom programming, a cost-effective,
robust and highly scalable, Internet-enhanced sales channel.
Some of the major benefits of Selectica's Internet selling system solution
are described below:
Provides Comprehensive Solution. ACE provides all of the functionality for
Internet selling in a single comprehensive solution. Our Internet selling system
solution has been developed with an open architecture that leverages data in
existing enterprise applications, such as ERP systems, providing an
easy-to-install application that is designed to reduce deployment time.
Opportunity for Increased Sales. We enable sellers of complex products and
services to reach and sell to additional customers by enabling them to use the
Internet as an effective sales channel. Our Internet selling system solution is
designed for the Internet platform, providing increased scalability and allowing
companies to sell over a broad range of Internet-enabled devices, including
devices with limited processing power, such as mobile devices.
Shorten Sales Cycle. Generally, in a traditional sales environment for
complex products and services, prospective buyers repeatedly interact with a
seller's sales force to determine an appropriate configuration and pricing.
Selectica's ACE software is designed to enable companies to reduce the time
required to convert interested prospects into customers in several ways,
including:
- providing comprehensive product information to the customer or sales
person at the point of sale without requiring interaction with product
experts; and
- automating the pricing and configuration of complex products and
services, thereby providing customers with accurate information in
real-time.
Improves Efficiency of the Indirect Sales Channel. Using our Internet
selling system solution, companies can enable their channel partners, such as
distributors and resellers to access their selling tools and product
information. This allows distributors and resellers to effectively sell complex
products and services with less support from the company. It also improves order
accuracy, which ultimately leads to greater efficiency and increased customer
satisfaction.
Opportunity for Greater Revenue per Customer. Sellers can use our Internet
selling system solution to perform real-time analysis and optimization to
identify cross-selling and up-selling opportunities, thereby increasing average
order size. For example, a prospective buyer of a computer may be prompted by
ACE to consider additional features such as increased memory or complementary
products such as a printer, based on specific selections made. In addition, by
enabling companies to build an easy-to-use selling channel that is always
available to their customers, ACE allows companies to capture a greater
percentage of their customers' business.
Allows Selling Process to Support Key Business Goals. ACE enables companies
to ensure that all orders conform to specific criteria. For example, if a
company had a minimum gross margin
40
<PAGE> 43
requirement for a given product, ACE could ensure that the features and options
chosen will result in a product that meets the company's margin objectives. ACE
also improves inventory management. For example, ACE can automatically promote
the sale of a product for which there is excess inventory.
Enhances Customer Relations. ACE enables a seller of complex products and
services to present each customer with different options based upon the
customer's specified needs. This customization of the selling process actively
engages the customer in the decision making process. ACE also ensures that
customers arrive at a product configuration that meets the business and
manufacturing guidelines of the company. We believe that ACE's functionality
enhances customer loyalty and satisfaction, ultimately resulting in increased
sales.
Rapid Deployment and Reduced Costs of Ownership. An effective Internet
selling system requires the user to build a knowledge base that captures its
product configurations and selling rules. ACE allows users to build, tailor and
maintain their knowledge base without custom programming. This enables users to
rapidly deploy our Internet selling system solution. It also reduces the need
for expensive technical specialists and programmers to maintain and enhance
their businesses' Internet selling systems.
STRATEGY
Our objective is to become the leading platform for Internet selling
systems. Key components of our strategy include:
Maintain Technology Leadership. We have developed ACE to be a comprehensive
Internet selling system that meets the needs of companies looking to efficiently
sell complex products and services. Our product architecture has been
specifically designed for the Internet, providing our solution with scalability,
reliability and flexibility. We intend to continue to invest heavily in research
and development to introduce new functionality and develop innovative products
that enable our customers to increase their selling efficiency.
Pursue Vertical Market Strategy. To date, we have targeted the computer,
networking systems, automotive and communication services industries. By
offering a high-performance and feature-rich Internet selling system solution to
meet complex and evolving needs, we have established reference accounts with
high-profile, market leaders including 3Com, BMW AG, BMW of North America,
Fujitsu PC, Fujitsu Networking Communications and Hewlett-Packard. We intend to
expand our position in these markets and leverage this position to target other
markets with complex products and services such as financial services and
manufacturing. In addition, we intend to leverage our experience in specific
industries to develop solutions that incorporate the business processes and
product knowledge used in those industries.
Continue to Build Relationships with Technology Providers. We believe that
establishing relationships with key technology providers is essential in
providing a comprehensive business solution for our customers. We intend to
focus on enhancing our Internet selling system functionality while partnering
with other leading technology providers to offer enhanced infrastructure and
complementary applications such as one-to-one marketing, supply chain
management, SFA or CRM.
Leverage and Expand Strategic Relationships. Our strategy is to complement
our direct sales force and professional service organization with strategic
partnerships with leading systems integrators and application service providers,
or ASPs. We believe that these partnerships will enable us to expand our market
reach, extend into new vertical markets and increase access to senior decision-
makers. These firms influence a customer's technology selection and their
recommendation represents
41
<PAGE> 44
a significant endorsement of our products. In addition, our relationships with
systems integrators and ASPs provide additional implementation and integration
resources.
Expand Internationally. As Internet adoption accelerates overseas, we
believe that international market demand for Internet selling system software
and services will increase. We plan to devote significant resources to grow our
sales and marketing efforts in order to penetrate international markets. We
intend to continue to target businesses characterized by high sales volumes and
countries characterized by high growth in demand for Internet selling system
products and services.
42
<PAGE> 45
SELECTICA PRODUCTS
The following table provides a list of our products and a brief description
of the features and benefits to our customers.
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
PRODUCT FEATURES BENEFITS
- ------------------------------------------------------------------------------------------------------
ACE Enterprise Server Electronic commerce configuration Enables customized, one-to-one
engine selling on the Internet
Highly scalable Internet-architecture Can scale to support millions of
simultaneous users by simply
installing more servers
Java-based Platform independence
Supports open standard integration Seamlessly integrates with other
interfaces Internet based applications and
legacy systems
Dynamic information update Can update product information
without stopping selling process
Easy-to-use, dynamically generated, Maximizes sales for productivity by
customized interface reducing sales training time
Supports devices with limited Can be deployed on a broad range of
processing power devices
HTML-based client Runs on any device with a standard
Internet browser
- ------------------------------------------------------------------------------------------------------
ACE Mobile Includes the features of ACE
Enterprise with the following
additional features:
Complete stand-alone selling system Enables mobile users to access our
that runs on laptop computers customers' Internet selling systems
with the same user interface as a
connected system
Automatically synchronizes knowledge Ensures accurate product and pricing
bases and quotes information and orders
- ------------------------------------------------------------------------------------------------------
ACE Enterprise Manager Administers multiple ACE Enterprise Add and remove ACE Enterprise Servers
Servers and ACE Mobile without stopping the selling process
Dynamically scales the load Optimizes available CPU, or central
distribution as more servers are processing unit, resources
added
- ------------------------------------------------------------------------------------------------------
ACE Quoter Central server and storage facility Enables users to generate, save and
for customer orders, configurations revise quotes online
and pricing information
Provides easy access from remote Eliminates errors in quotes and
devices to quote archives orders
- ------------------------------------------------------------------------------------------------------
ACE Studio Model, test and debug using a single Simplifies development process
tool
Graphical knowledge base and user Enables application deployment and
interface development tools maintenance by non-technical
personnel
- ------------------------------------------------------------------------------------------------------
ACE Repository Database that stores knowledge base Provides an audit trail for the
in readable, queryable format maintenance of large knowledge bases
- ------------------------------------------------------------------------------------------------------
ACE Connector Provides access to other enterprise Enables easy integration and reduces
applications costs and deployment time
- ------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 46
[INSERT DIAGRAM]
[Descriptions of Graphics
Surrounding the entire graphics is a large box. To the left of the box is a
rectangle. Above the rectangle is the text: "Users." The rectangle is divided
into two parts. In the top of the rectangle is a lap-top computer. Below the
lap-top is the text "Remote Sales Force."
In the lower portion of the rectangle are a computer, a kiosk, a mobile phone
and a personal digital assistant. Beneath these items is the text: "Customers,"
"Partners" and "Internal users."
To the right of the rectangle is a cloud. A two-headed arrow runs from the
cloud to the picture of the multiple devices inside the first rectangle. Inside
the cloud is the following text: "Intranet," "Extranet" and "Internet."
To the right of the cloud is a rectangle. A two-headed arrow runs from the
cloud to this rectangle. Inside the rectangle is the following text: "Web
Server."
To the right of the second rectangle is a large box. Inside the box are a set
of rectangles. Inside the first rectangle is the following text: "ACE Enterprise
Manager." A two-headed arrow runs from this rectangle to the prior rectangle.
The next rectangle to the right is divided into two parts. The top portion
contains the following text "ACE Mobile." A two-headed arrow runs from this
portion of the rectangle to the lap-top computer on the first rectangle.
The lower portion of this rectangle contains the following text: "ACE
Enterprise Server."
The next rectangle to the right is divided into two sections. The top section
contains the following text: "ACE Repository." The bottom section contains the
following text: "ACE Quoter."
The final rectangle in the large box is a rectangle that contains the
following text: "ACE Connectors." A two headed arrow runs from this rectangle to
a vertical line. The vertical line connects to four rectangles by four short
lines.
Above the four rectangles is the following text: "Legacy Systems." The first
rectangle contains the following text: "Order Entry." The next rectangle
contains the following text "RDBMS." The next rectangle contains the following
text: "ERP." The bottom rectangle contains the following text: "CRM/SFA."]
SELECTICA SERVICES
Professional Services
We maintain a highly qualified and experienced professional services
organization to deliver quality Internet selling system solutions. Our
professional services organization offers a broad range of services through its
consulting, customer education and technical support groups. These services
include product education, presales prototype development, training seminars,
product installation, application development, customizations, integration and a
full range of education and technical support. This organization is also
responsible for training our partners to provide professional services and
technical support to our customers. The professional services organization
consisted of 107 people as of December 31, 1999, 31 of which are based in San
Jose, California and 76 of which are based in Pune, India. Because significant
portions of Internet selling system implementations can be performed away from
the customer's site, we have the flexibility of being able to provide services
from either our U.S. or India-based operations.
Customer Support
In addition to professional services, we offer various levels of product
maintenance to our customers. Maintenance services are typically subject to an
annual, renewable contract and are typically priced as a percentage of product
license fees. Customers under maintenance contracts receive technical product
support and product upgrades as they are released throughout the life of the
maintenance contracts. We also provide Select Onsite, which consists of
specialized services provided at our customers' locations.
CUSTOMERS
Our customer base consists of a diverse group of companies operating in a
wide range of industries that are adopting electronic business strategies to
sell their complex products and services. Our current customers include:
<TABLE>
<S> <C> <C>
3Com Cisco LoanMarket
Allied Signal expenseVision Redback Networks
Aspect Communications Fireman's Fund RTS Software
BMW Fujitsu Samsung
Centigram Hewlett-Packard Watlow
</TABLE>
CASE STUDIES
The following case studies provide insights into how certain businesses are
benefiting from our Internet selling system solution:
Aspect Communications. Aspect Communications is a worldwide vendor of CRM
solutions. As part of a business restructuring, Aspect changed their strategic
direction from selling individual products to providing comprehensive CRM
solutions. This required that Aspect's sales people and distributors learn a new
selling process. Providing a comprehensive solution required Aspect's sales
people to configure a complete package of products and services based on each
customer's needs. Selectica provided Aspect with an Internet selling system that
prompts sales people with an automated set of questions to determine the
customers need and then recommend a comprehensive CRM solution based upon
customer responses. With ACE, Aspect's configuration, quotation and
44
<PAGE> 47
order processing is standardized, simple and streamlined. In addition, the new
selling system ensures greater accuracy and faster quote generation.
BMW. One of the world's most respected auto manufacturers for high quality
and brand loyalty is utilizing Selectica's Internet selling system for their
vehicle configurator to remain a leader in the rapidly changing marketing and
sales conditions of the Web. BMW of North America and BMW AG each created their
own web sites to compete with the proliferation of third party Internet auto
portals. By using Selectica's Internet selling system, BMW of North America and
BMW AG each provide customers with the full range of features, options and
financing alternatives to configure and price their vehicles, thereby enabling
customers to custom design vehicles. Using this vehicle configurator, BMW
analyzes configurations that have been saved by users for marketing trends and
product development direction. Through the implementation of Selectica's
technology, BMW hopes customer satisfaction is increased and dealers experience
faster sales cycles.
3Com Corporation. The 3Com Corporation, a $5.8 billion networking equipment
manufacturer, has a corporate-wide e-Business strategy that mandates that a
certain percentage of its total sales revenues come from its web site.
Selectica's Internet selling system helps 3Com's customers buy products and
services via the Internet by providing them with accurate product information
and automated assistance. Our solution automates needs analysis, pricing,
quoting and configuration and also helps users select modems, network interface
cards, notebook PC cards, multi-service access platforms and switches.
Previously, orders for products were either phoned in or faxed into 3Com by
direct sales, distributors and retailers, requiring a manual process. Selectica
technology has increased sales volumes by providing 24 hours a day, seven days a
week availability to 3Com's customers, simplifying the complexity of product
decisions, guaranteeing accuracy, and ease of buying processes for customers, as
well as reduced sales cost.
TECHNOLOGY
We have developed a unique architecture for developing a personalized,
intuitive, interactive and scalable Internet selling system solution that
includes selection, configuration, pricing, quoting and fulfillment processes.
The four key technological advantages of our Internet selling system solution
include:
- a declarative constraint engine;
- an integrated modeling environment;
- a multi-threaded server; and
- a scalable, thin-client architecture.
Declarative constraint engine
Most existing configurators are custom programs that were written
specifically for the product or family of products being configured. This means
both the configuration logic and the data describing product attributes are
combined in a single computer program that necessitates significant
reprogramming to reflect simple product changes. In contrast, our Internet
selling system solution utilizes a constraint-based engine that is completely
separate from the data describing the product attributes. This means that a
business can easily create and modify the knowledge base to reflect product
changes utilizing our integrated modeling environment thereby eliminating the
need for expensive programming teams.
45
<PAGE> 48
Our engine, written in Java, is easily deployed on various operating
platforms. The use of Java allows us to support a range of deployment
environments including Java applications in a notebook computer and ACE
Enterprise server generated browser-readable pages, with the same engine and the
same knowledge base.
Integrated modeling environment
We have developed an integrated modeling environment that allows our
customers to easily create a sophisticated Internet selling system solution
without any programming. Our Internet selling system solution utilizes drag and
drop tools that enable sales and marketing personnel, rather than expensive
programmers, to maintain and enhance their businesses' Internet selling systems.
Using these drag and drop tools, businesses can:
- easily create and update knowledge bases containing product attributes;
- create HTML-based graphical user interface, or GUI, applications;
- test the application interactively as the application is being built and
conduct batch order checks;
- verify the semantics of the knowledge base and identify some semantic
errors; and
- create flex models from individual models.
Multi-threaded server
We have a unique highly scalable server architecture for deploying our
customers' applications. The n-tier architecture, an architecture that enables
multiple servers to run at the same time, allows us to support a range of
configurations from a single ACE Enterprise Server, to several ACE Enterprise
Servers managed via a single ACE Enterprise Manager running on an HTTP server or
another server. An ACE Enterprise Manager can manage a single server running ACE
Enterprise Server or multiple, possibly overlapping servers all running ACE
Enterprise Servers. Our multi-threaded technologies enhance the performance for
each buyer session because each session state is preserved as the buyer makes
subsequent selections. Furthermore, our ACE Enterprise Server supports a large
number of concurrent user sessions because the engine uses a very small amount
of memory for each incremental user session.
Scalable thin-client architecture
Our software, employing a thin-client architecture, supports an Internet
computing model, enabling users to access an ISS with only an industry-standard
browser on a broad range of Internet-enabled devices. Our ACE Enterprise Servers
use our engine to process the user request from an HTML session, using the
knowledge base and legacy data as needed, to enforce rules, eliminate incorrect
choices and make calculations and then suggest choices by generating the next
HTML screen dynamically. Our servers can also be accessed by custom applications
using our thin-client application programming interfaces. Our ACE Enterprise
Server can communicate with our ACE Quoter or one or more database servers from
other vendors, and other enterprise resources, including legacy resources using
ACE Connectors.
46
<PAGE> 49
SALES AND MARKETING
Our sales and marketing objective is to achieve broad market penetration
through targeted sales and increased brand name recognition. As of December 31,
1999, our sales and marketing team consisted of 66 persons, with sales and field
support personnel in Atlanta, Chicago, Dallas, New York, San Jose, Seattle,
Canada, England and Germany and 23 marketing personnel located in San Jose.
We sell our ACE products primarily through a direct sales force supported
by telesales, system engineering and integration support. We believe that the
integration of these support networks assists in both the establishment and
enhancement of customer relationships. We have developed programs to attract and
retain high quality, motivated sales representatives that have the necessary
technical skills and consultative sales experience.
Our marketing department is engaged in a wide variety of activities, such
as awareness and lead generation programs and product management. These
activities include public relations, speaking programs, seminars, direct mail,
trade shows and advertising.
STRATEGIC RELATIONSHIPS
Our business development group focuses on developing strategic
relationships with vendors who will help us rapidly penetrate key markets with
our comprehensive Internet selling system solution. We have developed strong
working relationships with system integrators, such as Andersen Consulting,
Arthur Andersen, EDS, KPMG and PricewaterhouseCoopers, with independent software
vendors such as BroadVision, InterWorld, Netscape/AOL and Tibco, and with
application service providers such as Asera and Corio.
STRATEGIC INVESTORS
One of our investors is the Intel 64 Fund. The Intel 64 Fund is a quarter
billion dollar equity fund that invests in emerging technologies for
next-generation servers and workstations utilizing Intel's IA-64 architecture.
The Fund is coordinated by Intel and Compaq, Dell, HP, Intel, NEC, and SGI as
co-investors. The Fund's other investors, managed by Morgan Stanley Dean Witter,
include Bank of America, The Boeing Company, Circuit City, Enron, Ford Motor
Company, General Electric, McKessonHBOC, Morgan Stanley Dean Witter, Reuters,
Sabre, SmithKline Beecham, Sumitomo Corp., SunAmerica and Telmex. In October
1999, the Intel 64 Fund purchased shares of our preferred stock as part of a
private sale of our securities.
RESEARCH AND DEVELOPMENT
To date we have invested substantial resources in research and development.
At December 31, 1999, we had approximately 62 full-time engineers and technical
writing specialists that primarily work on product development, documentation,
quality assurance and testing.
We expect that most of our new products and enhancements to existing
products will be developed internally. However, we will evaluate on an ongoing
basis externally developed technologies for integration into our suite of
products. Enhancements to our existing products are released periodically to add
new features, improve functionality and incorporate feedback and suggestions
from our current customer base. These updates are usually provided as part of
separate maintenance agreement sold with the product license.
47
<PAGE> 50
COMPETITION
Although we are a leading provider of Internet selling system software and
services, the market for software products that enable electronic commerce is
intensely competitive, and we expect competition in the Internet selling system
software and services market to increase substantially. We encounter competition
from a number of different sources, including in-house and customized
Internet-development companies, companies focused on Internet selling systems
and other enterprise software companies. We expect competition to persist and
intensify, which could result in price reductions, reduced gross margins and
loss of market share. Our principal competitors include Calico Commerce,
FirePond and Trilogy Software. BAAN, Oracle Corporation, SAP and Siebel Systems
offer integrated solutions for electronic commerce incorporating some of the
functionality of an Internet selling system and may intensify their efforts in
our market. In addition, other enterprise software companies may offer
competitive products in the future.
Competitors vary in size and in the scope and breadth of the products and
services offered. Although we believe we have advantages over our competitors
including the comprehensiveness of our solution, our use of Java technology and
our multi-threaded architecture, many of our competitors and potential
competitors have a number of significant advantages over us, including:
- a longer operating history;
- a preferred vendor status with our customers;
- more extensive name recognition and marketing power; and
- significantly greater financial, technical, marketing and other
resources, giving them the ability to respond more quickly to new or
changing opportunities, technologies and customer requirements.
Our competitors may also bundle their products in a manner that may
discourage users from purchasing our products. Current and potential competitors
may establish cooperative relationships with each other or with third parties,
or adopt aggressive pricing policies to gain market share. Competitive pressures
may require us to reduce the prices of our products and services. We may not be
able to maintain or expand our sales if competition increases and we are unable
to respond effectively.
PROPRIETARY RIGHTS
We rely on a combination of trademark, trade secret and copyright law and
contractual restrictions to protect the proprietary aspects of our technology.
These legal protections afford only limited protection for our technology. We
currently have three pending U.S. patent applications. In addition, we have
three trademarks and have applied to register two of them in the United States.
Our trademark and patent applications might not result in the issuance of any
trademarks or patents. If any patent or trademark is issued, it might be
invalidated or circumvented or otherwise fail to provide us any meaningful
protection. We seek to protect the source code for our software, documentation
and other written materials under trade secret and copyright laws. We license
our software pursuant to signed license agreements, which impose certain
restrictions on the licensee's ability to utilize the software. We also seek to
avoid disclosure of our intellectual property by requiring employees and
consultants with access to our proprietary information to execute
confidentiality agreements. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary. In addition, the laws
of many countries do not protect our proprietary rights to as great an extent as
do the laws of the United States. Litigation may be necessary in the future to
enforce
48
<PAGE> 51
our intellectual property rights, to protect our trade secrets and to determine
the validity and scope of the proprietary rights of others. Our failure to
adequately protect our intellectual property could have a material adverse
effect on our business and operating results.
Our success and ability to compete are dependent on our ability to operate
without infringing upon the proprietary rights of others. Any intellectual
property litigation could result in substantial costs and diversion of resources
and could significantly harm our business and operating results. In the past, we
received correspondence from two patent holders recommending that we license
their respective patents. After review of these patents, we informed these
patent holders that in our opinion, it would not be necessary to license these
patents. However, we may be required to license either or both patents or incur
legal fees to defend our position that such licenses are not necessary. We may
not be able to obtain a license to use either patent on commercially reasonable
terms, or at all. In January 2000 we received correspondence from Celestica,
Inc. alleging that our use of the mark SELECTICA infringes upon their registered
mark of CELESTICA. We are currently evaluating the validity of their claim. We
may be required to incur legal fees and enter into litigation with respect to
defending our mark.
Any threat of intellectual property litigation could force us to do one or
more of the following:
- cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant intellectual property, which license
may not be available on reasonable terms;
- redesign those products or services that incorporate such intellectual
property; or
- pay money damages to the holder of the infringed intellectual property
right.
In the event of a successful claim of infringement against us and our
failure or inability to license the infringed intellectual property on
reasonable terms or license a substitute intellectual property or redesign our
product to avoid infringement, our business and operating results would be
significantly harmed. If we are forced to abandon use of our trademark, we may
be forced to change our name and incur substantial expenses to build a new
brand, which would significantly harm our business and operating results.
EMPLOYEES
At December 31, 1999, we had a total of 269 employees, 101 of whom were
based in India. Of the total, 169 were in engineering, consulting and research
and development, 66 were engaged in sales, marketing and business development
and 34 were in administration and finance. None of our employees is represented
by a labor union and we consider our relations with our employees to be good.
FACILITIES
Our principal administrative, sales, marketing and research and development
facility occupies approximately 80,000 square feet of office space at 3 West
Plumeria Drive, San Jose, California 95134. The lease extends through November
2009. We believe the office space in the new facility will be adequate to meet
our needs for the next 12 months. We also have regional offices in Chicago,
Dallas, New York, Reading, England, Dusseldorf, Germany, and Pune, India.
49
<PAGE> 52
MANAGEMENT
Our executive officers and directors and their ages and positions as of
January 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Rajen Jaswa............................. 47 Chairman of the Board, Chief Executive Officer
and President
Dr. Sanjay Mittal....................... 47 Vice Chairman of the Board, Chief Technical
Officer and Vice President of Engineering
Dr. S.S. Sundarajan..................... 49 Vice President of Indian Operations
Daniel A. Carmel........................ 38 Vice President of Marketing
Stephen Bennion......................... 53 Chief Financial Officer, Vice President of
Finance and Secretary
Ashish Mathur........................... 42 Vice President of Worldwide Professional
Services
Charles Pendell......................... 45 Vice President of Sales, Americas
Betsy Atkins(1)......................... 44 Director
John Fisher(1)(2)....................... 41 Director
Michael Lyons(2)........................ 57 Director
Robin Richards Donohoe.................. 34 Director
Thomas Neustaetter(2)................... 47 Director
</TABLE>
- -------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Rajen Jaswa, a co-founder of Selectica, has served as our Chairman,
President and Chief Executive Officer since our inception. Prior to Selectica,
Mr. Jaswa co-founded and served as President of OPTi, a supplier of PC
compatible chipsets from January 1995 to January 1996 and as Vice President of
Sales and Marketing from August 1989 to December 1994. Mr. Jaswa received his
B.Tech in Electrical Engineering from the Indian Institute of Technology, his
M.S.E.E. in Electrical Engineering from the University of Toronto and his M.B.A.
from Stetson University.
Dr. Sanjay Mittal, a co-founder of Selectica, has served as our Chief
Technical Officer, Vice President of Engineering and a Director since our
inception. In January 2000 Dr. Mittal was elected Vice Chairman of the Board of
Directors. Prior to co-founding Selectica, from April 1992 to July 1996, Dr.
Mittal was the founder and President of Catalogics Software, a configuration
software company acquired by Selectica in July 1996. From 1990 to April 1992,
Dr. Mittal managed a development team at Metaphor, a business software company.
Prior to that, Dr. Mittal was a senior research scientist at Xerox's Palo Alto
Research Center (PARC) from 1982 to 1990. Dr. Mittal received his B.Tech in
Electrical Engineering from the Indian Institute of Technology and his M.S. and
Ph.D. in Computer Science from Ohio State University.
Dr. S.S. Sundarajan has served as our Vice President of Indian Operations
since June 1998. Prior to joining Selectica, Dr. Sundarajan served as Chief
Executive of Datapro Electronics, a software company focusing on real time
systems, in Pune, India, from April 1986 to June 1998. Dr. Sundarajan received
his B.S. in Engineering from Pune University and his M.S. in Electrical
Engineering and Ph.D. from Ohio State University.
Daniel A. Carmel has served as our Vice President of Marketing and Business
Development since July 1999. Prior to joining Selectica, Mr. Carmel served as
Executive Vice President for Sonnet Financial, an Internet financial services
company, from August 1994 to July 1999. Mr. Carmel
50
<PAGE> 53
received his B.S. and M.S. in Engineering at the University of Pennsylvania and
his M.B.A. from Stanford University.
Stephen Bennion has served as our Chief Financial Officer and Vice
President of Finance since September 1999. In January 2000 Mr. Bennion was
elected our Secretary. From April 1998 to September 1999, Mr. Bennion served in
various capacities for Cohesive Technology Solutions, a technology consulting
company, including Vice President and Chief Financial Officer and Western Region
Managing Partner. From April 1995 to April 1998, Mr. Bennion served as Executive
Vice President and Chief Financial Officer for Worldtalk Communications, an
Internet e-mail software company. Mr. Bennion received his B.S. in accounting
from Weber State University and is a Certified Public Accountant.
Ashish Mathur has served as our Vice President of Worldwide Professional
Services since April 1997. Prior to joining Selectica, Mr. Mathur served as Vice
President of Worldwide Professional Services for Pure Atria from June 1992 to
April 1997. Mr. Mathur received his B.Tech in Electrical Engineering from the
Indian Institute of Technology and his M.S. in Computer Science from the
University of Southern California.
Charles Pendell joined as our Vice President of Sales, Americas in October
1998. Prior to joining Selectica, Mr. Pendell served as Vice President of
Worldwide Sales and Field Operations for Action Technologies, an Internet-based
workflow software company, from December 1994 to September 1998. Mr. Pendell
received his B.S. in Business Administration from Washington State University.
Betsy Atkins has served as a director since February 1997. Since 1995, Ms.
Atkins has served as Chief Executive Officer of Baja Corporation, a consulting
firm. Prior to joining Baja, Ms. Atkins was the Chief Executive Officer of NCI,
a manufacturing company. Ms. Atkins is both a founder and serves on the board of
directors of Ascend, a Lucent Network Solutions company. She also serves on the
board of directors of Paradyne, a digital subscriber line networking company,
and Polycom, a video-teleconferencing company. Ms. Atkins received her B.A. in
History from the University of Massachusetts and her B.A. from Trinity College
at Oxford.
John Fisher has served as a director since July 1997. Since 1991, Mr.
Fisher has served as a Managing Director of Draper Fisher Jurvetson, a venture
capital firm. Mr. Fisher serves on the boards of directors of Brodia Group,
Entegrity Solutions, Praxon, RealNames, Sonnet Financial and WIT Capital Group.
Mr. Fisher received his B.A., Magna Cum Laude, in History of Science and his
M.B.A. from Harvard University.
Michael Lyons has served as a director since July 1998. Since 1997, Mr.
Lyons has served as the General Partner of Zilkha Venture Partners, a venture
capital firm. Since June 1992, Mr. Lyons has served as the General Partner of
Potrero Management, a venture capital firm. Since 1989, Mr. Lyons has been a
Consulting Associate Professor at the Stanford University Department of
Management Science and Engineering. Mr. Lyons is a member of the board of
directors of Informed Diagnostics, a sensor technology company and Advanced
Interactive Systems, a firearms training simulation company. Mr. Lyons received
his B.S.E.P. in Engineering Physics from Cornell University, M.S. in Electrical
Engineering from Stanford and M.B.A. with distinction from the Pepperdine
Presidential/ Key Executive Program.
Robin Richards Donohoe has served as a director since January 1997. Since
1995, Ms. Donohoe has served as General Partner of Draper International India,
L.P., a venture capital firm. Ms. Donohoe is also a General Partner of Draper
Richards L.P., a venture capital firm. Ms. Donohoe received her B.A. Phi Beta
Kappa in International Studies from the University of North Carolina and her
M.B.A. from Stanford University.
51
<PAGE> 54
Thomas Neustaetter has served as a director since July 1999. Since March
1999, Mr. Neustaetter has been an Executive Member of JK&B Capital, a venture
capital firm. Prior to joining JK&B Capital, Mr. Neustaetter was a Partner of
the Chatterjee Group, an affiliate of Soros Fund Management, from January 1996
to February 1999. Prior to working at the Chatterjee Group, Mr. Neustaetter was
the President and founder of Bancroft Capital, a general consulting firm, from
December 1994 to December 1995. Mr. Neustaetter serves on the boards of
directors of MGC Communications, 21st Century Telecom Group, Gloss.com, Update
Marketing and Vertex Holdings. Mr. Neustaetter earned his B.A. Phi Beta Kappa in
Philosophy from the University of California, Berkeley, and his M.B.A. and M.S.
in Information Science from University of California, Los Angeles.
BOARD OF DIRECTORS
We currently have authorized seven directors. Upon the completion of the
offering, the terms of the office of the board of directors will be divided into
three classes: Class A, whose term will expire at the annual meeting of the
stockholders to be held in 2000; Class B, whose term will expire at the annual
meeting of stockholders to be held in 2001; and Class C, whose term will expire
at the annual meeting of stockholders to be held in 2002. The Class A directors
will be Robin Richards Donohoe and Betsy Atkins; the Class B directors will be
John Fisher, Michael Lyons and Rajen Jaswa; and the Class C directors will be
Thomas Neustaetter and Sanjay Mittal. At each annual meeting of stockholders
after the initial classification, each elected director will serve from the time
of his election and qualification until the third annual meeting following his
or her election. This classification of the board of directors may have the
effect of delaying or preventing changes in control or management. All of our
officers serve at the discretion of the board of directors. There are no family
relationships among our directors and officers.
Board Committees
The board of directors has a compensation committee and an audit committee.
Compensation Committee. The compensation committee of the board of
directors reviews and makes recommendations to the board regarding all forms of
compensation provided to our executive officers and directors and our subsidiary
including stock compensation and loans. In addition, the compensation committee
reviews and makes recommendations on bonus and stock compensation arrangements
for all of our employees. As part of these responsibilities, the compensation
committee also administers our 1996 Stock Plan, 1999 Equity Incentive Plan and
1999 Employee Stock Purchase Plan. The current members of the compensation
committee are Ms. Atkins and Mr. Fisher.
Audit Committee. The audit committee of the board of directors reviews and
monitors our corporate financial reporting and our internal and external audits,
including our internal audit and control functions, the results and scope of the
annual audit and other services provided by our independent auditors and our
compliance with legal matters that have a significant impact on our financial
reports. The audit committee also consults with management and our independent
auditors before the presentation of financial statements to stockholders and, as
appropriate, initiates inquiries into aspects of our financial affairs. In
addition, the audit committee is responsible for considering and recommending
the appointment of, and reviewing fee arrangements with, our independent
auditors. The current members of the audit committee are Messrs. Neustaetter,
Lyons and Fisher.
Director Compensation
Ms. Atkins received an option for 30,000 shares of common stock on February
4, 1997 at an exercise price of $0.025 per share and an option for 20,000 shares
of our common stock on
52
<PAGE> 55
November 18, 1999 at an exercise price of $4.38 per share. Under our 1999 Equity
Incentive Plan, each non-employee director who first becomes a board member
following this offering will receive an automatic option grant of 30,000 shares
of our common stock on the date when he or she initially becomes a board member.
Each non-employee director who will continue to be a board member following an
annual meeting of stockholders will receive an annual automatic option grant of
7,500 shares at each annual meeting under our 1999 Equity Incentive Plan,
beginning at the 2001 annual meeting. Please see "Employee Benefit Plans -- 1999
Equity Incentive Plan" for more details.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors currently consists of
Ms. Atkins and Mr. Fisher. No interlocking relationship exists between any
member of our board of directors or our compensation committee and any member of
the board of directors or compensation committee of any other company, and no
interlocking relationship has existed in the past. For disclosure of any related
party transactions between the members of the compensation committee and
Selectica, please see the section below entitled "Related Party Transactions."
INDEMNIFICATION
Our Second Amended and Restated Certificate of Incorporation, to be
effective after the closing of this offering, includes a provision that
eliminates the personal liability of our directors and officers for monetary
damages for breach of fiduciary duty as a director or officer, except for
liability:
- for any breach of the director's or officer's duty of loyalty to us or
our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director or officer derived an
improper personal benefit.
These provisions are permitted under Delaware law.
Our bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, subject to very limited exceptions;
- we may indemnify our other employees and agents to the same extent that
we indemnified our officers and directors; and
- we must advance expenses, as incurred, to our directors and officers in
connection with a legal proceeding to the fullest extent permitted by
Delaware law, subject to very limited exceptions.
We have also entered into indemnification agreements with our officers and
directors containing provisions that may require us to indemnify our officers
and directors against liabilities that may arise by reason of their status or
service as directors or officers, other than liabilities arising from willful
misconduct of a culpable nature, to advance their expenses incurred as a result
of any proceeding against them as to which they could be indemnified, and to
obtain directors' and officers' insurance if available on reasonable terms.
53
<PAGE> 56
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents compensation information for fiscal year 1999
paid by us for services by our chief executive officer and our four other
highest-paid executive officers whose total salary and bonus for the fiscal year
exceeded $100,000:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION(1) SALARY BONUS OPTIONS
------------------------------ -------- ------- ------------
<S> <C> <C> <C>
Rajen Jaswa................................................. $139,583 $ -- --
Chief Executive Officer and President
Dr. Sanjay Mittal........................................... 139,583 -- --
Chief Technical Officer, Vice President of Engineering and
Secretary
Ashish Mathur............................................... 139,583 -- --
Vice President of Worldwide Professional Services
Charles Pendell(2).......................................... 146,250 -- 300,000
Vice President of Sales, Americas
Vasudev Bhandarkar(3)....................................... 143,621 5,000 --
Vice President, Business Development and Marketing
</TABLE>
- -------------------------
(1) Mr. Daniel A. Carmel commenced service with us as Vice President of
Marketing and Business Development in September 1999, and his annual base
salary is currently $175,000. Mr. Stephen Bennion commenced service with us
as Vice President and Chief Financial Officer in September 1999, and his
annual base salary is currently $175,000.
(2) Mr. Pendell commenced service with us as Vice President of Sales, Americas
in October 1998, and his annual base salary is currently $150,000.
(3) Mr. Bhandarkar ceased service as Vice President, Business Development and
Marketing as of March 19, 1999.
Option Grants in Last Fiscal Year
The following table designates each grant of stock options during fiscal
year 1999 to our chief executive officer and our four other highest-paid
executive officers.
The figures representing percentages of total options granted to employees
in the last fiscal year are based on a total of 1,361,804 option shares granted
to our employees under our 1996 Stock Plan during fiscal year 1999.
The exercise price of each option granted is equal to the fair value of our
common stock as valued by our board of directors on the date of grant. The
exercise price may be paid in cash, in shares of our common stock valued at fair
value on the exercise date or through a cashless exercise procedure involving a
same-day sale of the purchased shares. We may also finance the option exercise
by lending the optionee sufficient funds to pay the exercise price for the
purchased shares. See "Related Party Transactions -- Loans."
54
<PAGE> 57
The calculation of the potential realizable value is based on the ten-year
term of the option at the time of grant. We assumed stock price appreciation of
5% and 10% over the assumed initial public offering price of $10.00 per share;
this does not represent our prediction of our stock price performance.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF TOTAL STOCK PRICE
SECURITIES OPTIONS GRANTED APPRECIATION FOR
UNDERLYING TO EMPLOYEES EXERCISE OPTION TERM
OPTIONS IN THE FISCAL PRICE EXPIRATION ------------------------
NAME GRANTED YEAR(%) ($/SHARE) DATE 5% 10%
---- ---------- ------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rajen Jaswa.................. -- -- -- -- -- --
Dr. Sanjay Mittal............ -- -- -- -- -- --
Ashish Mathur................ -- -- -- -- -- --
Charles Pendell.............. 300,000 22.03 $0.25 9/22/08 $1,886,684 $4,781,227
Vasudev Bhandarkar........... -- -- -- -- -- --
</TABLE>
Mr. Mathur was granted an option to purchase 100,000 shares of our common
stock on April 20, 1999 at an exercise price of $1.50 per share. Mr. Pendell was
granted options to purchase a total of 75,000 shares of our common stock on
October 1, 1999 at an exercise price of $2.50 per share. Mr. Daniel Carmel was
granted options to purchase a total of 400,000 shares of our common stock on
September 22, 1999 at an exercise price of $2.50 per share. Mr. Stephen Bennion
was granted options to purchase a total of 300,000 shares of our common stock on
September 22, 1999 at an exercise price of $2.50 per share. Mr. Jaswa was
granted options to purchase a total of 250,000 shares of our common stock on
December 15, 1999 at an exercise price of $10.00 per share. Dr. Mittal was
granted options to purchase a total of 250,000 shares of our common stock on
December 15, 1999 at an exercise price of $10.00 per share.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table presents all unexercised options held by our chief
executive officer and our four highest-paid executive officers during fiscal
year 1999.
The options listed in the table become vested as follows: upon the
completion of 12 months of service, 25% of the option shares vest and upon the
completion of each of the next 36 months of service, 1/48 of the option shares
vest.
The amounts under "Value of Unexercised in-the-Money Options" were
calculated by determining the difference between the exercise price and the
assumed initial public offering price of $10.00 per share.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS AT VALUE OF UNEXERCISED
FISCAL YEAR END IN-THE-MONEY
------------------ OPTIONS AT
NAME UNVESTED VESTED FISCAL YEAR END
---- -------- ------ --------------------
<S> <C> <C> <C>
Rajen Jaswa................................................. -- --
Dr. Sanjay Mittal........................................... -- --
Ashish Mathur............................................... -- --
Charles Pendell............................................. 300,000 0 $2,925,000
Vasudev Bhandarkar.......................................... -- --
</TABLE>
55
<PAGE> 58
EMPLOYEE BENEFIT PLANS
1996 Stock Plan.
As of December 31, 1999, options to purchase 2,180,815 shares of common
stock were outstanding under the 1996 Stock Plan and options to purchase
3,767,494 shares had been exercised and 126,435 shares of stock have been
granted for services. Options granted under the 1996 Stock Plan are subject to
terms substantially similar to those described below with respect to options
granted under the 1999 Equity Incentive Plan, except that upon an involuntary
termination following a change in control, the options granted under the 1996
Stock Plan do not accelerate.
1999 Equity Incentive Plan.
Our board of directors adopted our 1999 Equity Incentive Plan on November
18, 1999. We will also seek stockholder approval of this plan. We have reserved
2,200,000 shares of our common stock for issuance under the 1999 Equity
Incentive Plan. As of January 1 of each year, starting in 2001, the number of
shares reserved for issuance under our 1999 Equity Incentive Plan will be
increased automatically by 5% of the total number of shares of common stock then
outstanding or, if less, 1,800,000 shares. No options have yet been granted
under the 1999 Equity Incentive Plan.
Under the 1999 Equity Incentive Plan, the persons eligible to receive
awards are:
- employees;
- non-employee members of the board of directors; and
- consultants.
The types of awards that may be made under the 1999 Equity Incentive Plan
are:
- options to purchase shares of common stock;
- stock appreciation rights;
- restricted shares; and
- stock units.
Options may be incentive stock options that qualify for favorable tax
treatment for the optionee under Section 422 of the Internal Revenue Code of
1986 or nonstatutory stock options not designed to qualify for favorable tax
treatment. With limited restrictions, if shares awarded under the 1999 Equity
Incentive Plan are forfeited, those shares will again become available for new
awards under the 1999 Equity Incentive Plan.
The compensation committee of our board of directors administers the 1999
Equity Incentive Plan. The committee has complete discretion to make all
decisions relating to the interpretation and operation of our 1999 Equity
Incentive Plan. The committee has the discretion to determine which eligible
individuals are to receive an award, and to determine the type, number, vesting
requirements and other features and conditions of each award.
The exercise price for incentive stock options granted under the 1999
Equity Incentive Plan may not be less than 100% of the fair market value of our
common stock on the option grant date. The exercise price for non-statutory
options granted under the 1999 Equity Incentive Plan may not be less than 85% of
the fair market value of our common stock on the option grant date.
56
<PAGE> 59
Our 1999 Equity Incentive Plan provides that no participant may receive
options or stock appreciation rights covering more than 330,000 shares in the
same year, except that a newly hired employee may receive options or stock
appreciation rights covering up to 660,000 shares in the first year of
employment.
The exercise price may be paid with:
- cash;
- outstanding shares of common stock;
- the cashless exercise method through a designated broker;
- a pledge of shares to a broker; or
- a promissory note.
The purchase price for newly issued restricted shares awarded under the
1999 Equity Incentive Plan may be paid with:
- cash;
- a promissory note; or
- the rendering of past services.
The committee may reprice options and may modify, extend or assume
outstanding options and stock appreciation rights. The committee may accept the
cancellation of outstanding options or stock appreciation rights in return for
the grant of new options or stock appreciation rights. The new option or right
may have the same or a different number of shares and the same or a different
exercise price.
Each individual who first joins our board of directors as a non-employee
director after the effective date of this offering will receive at that time an
option for 30,000 shares of our common stock. This option becomes vested as to
25% of the option shares upon the completion of 12 months of service and as to
1/48 of the option shares upon the completion of each month of service
thereafter. In addition, at each of our annual stockholders' meetings, beginning
in 2001, each non-employee director who will continue to be a director after
that meeting will automatically be granted at that meeting an option for 7,500
shares of our common stock. However, any non-employee director who receives an
option for 30,000 shares under this plan will first become eligible to receive
the annual option for 7,500 shares at the annual meeting that occurs during the
calendar year following the year in which he or she received the option for
30,000 shares. The option for 7,500 shares becomes vested upon the completion of
12 months of service from the grant date. If there is a change in control, or a
termination as a result of death, disability or retirement after reaching age
65, the options granted to non-employee directors will become fully vested.
If a change in control occurs, an option or other award under the 1999
Equity Incentive Plan will become fully exercisable and fully vested if the
option or award is not assumed by the surviving corporation or its parent or
subsidiary or if the surviving corporation or its parent or subsidiary does not
substitute comparable awards for the awards granted under the 1999 Equity
Incentive Plan. If a change in control occurs and an optionee is involuntarily
terminated within 12 months following this change in control, then the vesting
of options held by the optionee will accelerate, as if the optionee provided
another 12 months of service. This vesting acceleration will not occur if it
prevents us from completing a transaction that is a "pooling of interest"
transaction.
57
<PAGE> 60
A change in control includes:
- a merger or consolidation after which our then-current stockholders own
less than 50% of the surviving corporation;
- a sale of all or substantially all of our assets;
- a proxy contest that results in replacement of more than one-half of our
directors over a 24-month period; or
- an acquisition of 50% or more of our outstanding stock by a person other
than a person related to us, including a corporation owned by our
stockholders.
If a merger or other reorganization occurs, the agreement of merger or
reorganization may provide that outstanding options and other awards under the
1999 Equity Incentive Plan shall be assumed by the surviving corporation or its
parent, shall be continued by us if we are the surviving corporation, shall have
accelerated vesting and then expire early or shall be cancelled for a cash
payment.
Our board of directors may amend or terminate the 1999 Equity Incentive
Plan at any time. If our board amends the plan, stockholder approval of the
amendment will be sought only if required by applicable law. The 1999 Equity
Incentive Plan will continue in effect indefinitely unless the board decides to
terminate the plan earlier.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan was adopted by our board of directors
on November 18, 1999. We will also seek stockholder approval of this plan. We
have reserved 1,000,000 shares of our common stock for issuance under our 1999
Employee Stock Purchase Plan. As of February 15 each year, starting in 2001, the
number of shares reserved for issuance under our 1999 Employee Stock Purchase
Plan will be increased automatically by 2% of the total number of shares of
common stock then outstanding or, if less, 1,000,000 shares. Our 1999 Employee
Stock Purchase Plan is intended to qualify under Section 423 of the Internal
Revenue Code.
Eligible employees may begin participating in the 1999 Employee Stock
Purchase Plan at the start of an offering period. Each offering period lasts 24
months. Two overlapping offering periods will start on February 15 and August 15
of each calendar year. However, the first offering period will start on the
effective date of this offering and end on February 14, 2002. Purchases of our
common stock will occur on approximately February 14 and August 14 of each
calendar year during an offering period.
Our 1999 Employee Stock Purchase Plan will be administered by the
compensation committee of our board of directors. Each of our employees is
eligible to participate if he or she is employed by us for more than 20 hours
per week and for more than five months per year.
Our 1999 Employee Stock Purchase Plan permits each eligible employee to
purchase common stock through payroll deductions. Each employee's payroll
deductions may not exceed 15% of the employee's cash compensation. The initial
purchase period during which payroll deductions may be contributed will begin on
the effective date of this offering and end on August 14, 2000. Each participant
may purchase up to 750 shares on any purchase date.
58
<PAGE> 61
The price of each share of common stock purchased under our 1999 Employee
Stock Purchase Plan will be 85% of the lower of:
- the fair market value per share of common stock on the date immediately
before the first date of the applicable offering period; or
- the fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the
plan will be 85% of the lower of:
- the price offered to the public in this offering; or
- the fair market value per share of common stock on the purchase date.
Employees may end their participation in the 1999 Employee Stock Purchase
Plan at any time. Participation ends automatically upon termination of
employment with us.
If a change in control occurs, our 1999 Employee Stock Purchase Plan will
end and shares will be purchased with the payroll deductions accumulated to date
by participating employees, unless this plan is assumed by the surviving
corporation or its parent. Our board of directors may amend or terminate the
1999 Employee Stock Purchase Plan at any time. If our board increases the number
of shares of common stock reserved for issuance under the 1999 Employee Stock
Purchase Plan, it must seek the approval of our stockholders.
EMPLOYMENT AGREEMENTS, SEVERANCE AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
Under their respective employment agreements, our Chief Executive Officer,
Rajen Jaswa, and our Chief Technical Officer and Vice President of Engineering,
Dr. Sanjay Mittal, will receive their most recent base salary for 12 months
after their date of termination if they are terminated without cause. In
addition, our repurchase right with respect to the shares of our common stock
that they currently hold will lapse entirely and all of such shares will become
fully vested upon a termination without cause.
Mr. Vasudev Bhandarkar, our former Vice President, Business Development and
Marketing, executed a severance agreement with us on March 19, 1999. Under this
severance agreement, we paid to Mr. Bhandarkar his then base salary and any
COBRA premiums for a 12-month period following his termination date in
consideration for his execution of a release of claims against us. Under the
terms of his offer letter with us, all of the options and shares of our common
stock held by him became fully vested on his termination date.
If a change in control occurs, an option or other award under the 1999
Equity Incentive Plan will become fully exercisable and fully vested if the
option or award is not assumed by the surviving corporation or its parent or
subsidiary or if the surviving corporation or its parent or subsidiary does not
substitute comparable awards for the awards granted under the 1999 Equity
Incentive Plan. In addition, if an optionee is involuntarily terminated within
12 months following a change in control, he or she will become vested in an
additional number of option shares as if he or she completed another 12 months
of service. This vesting acceleration will not occur if it prevents us from
completing a transaction that is a pooling of interest transaction.
Under our 1996 Stock Plan, upon a merger or asset sale, if the options or
stock purchase rights are not assumed by the surviving corporation or its parent
or subsidiary or if the surviving corporation or its parent or subsidiary does
not substitute comparable awards for the options or stock purchase rights, then
the options and stock purchase rights will become fully vested.
59
<PAGE> 62
If a change in control occurs and an executive officer or certain of our
key employees are involuntarily terminated within 12 months following this
change in control, then he or she will become vested in an additional number of
option shares equal to the greater of 50% of the then unvested option shares or
the number of option shares the executive officer would become vested in if he
or she completed another 12 months of service.
RELATED PARTY TRANSACTIONS
Equity Financings. Since our inception we have financed our growth
primarily through the sale of Preferred Stock, resulting in the issuance of an
aggregate of 1,700,000 shares of Series A Preferred Stock at an effective
purchase price of $.091667 per share, 3,750,000 shares of Series B Preferred
Stock at a purchase price of $0.2667 per share, 3,253,126 shares of Series C
Preferred Stock at a purchase price of $0.922 per share, 4,863,935 shares of
Series D Preferred Stock at a purchase price of $1.47 per share and 6,143,896
shares of Series E Preferred Stock at a purchase price of $4.382 per share. The
buyers of our Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock included
the following directors, executive officers and 5% stockholders.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D SERIES E
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Betsy Atkins........................................ -- 93,750 81,328 -- 40,165
Stephen Bennion..................................... -- -- -- -- 22,820
Daniel A. Carmel.................................... -- -- -- -- 57,051
John Fisher......................................... -- -- -- -- 114,103
Rajen Jaswa......................................... 740,000.. 281,250 -- -- --
Thomas Neustaetter.................................. -- -- -- -- 22,820
ENTITIES ASSOCIATED WITH DIRECTORS AND 5%
STOCKHOLDERS
Entities associated with Draper Fisher
Jurveston(1)...................................... -- -- 2,439,844 714,285 342,308
Draper International India, L.P.(2)................. -- 2,812,500 542,188 510,204 117,103
Entities associated with Zilkha Venture
Partners(3)....................................... -- -- -- 2,448,979 228,206
JK&B Capital III, L.P.(4)........................... -- -- -- -- 1,141,030
Entities associated with Chatterjee Management
Company........................................... -- -- -- 1,020,407 433,592
</TABLE>
- -------------------------
(1) John Fisher, one of our directors, is a general partner of venture funds
associated with Draper Fisher Jurveston.
(2) Robin Richards Donohoe, one of our directors, is a general partner of Draper
International India, L.P.
(3) Michael Lyons, one of our directors, is a general partner of venture funds
associated with Zilkha Venture Partners.
(4) Thomas Neustaetter, one of our directors, is a member of JK&B Management
LLC, the general partner of JK&B Capital III, L.P.
Bridge Financing. On May 14, 1999 we entered into a Note and Warrant
Purchase Agreement with Draper International, L.P., Draper Fisher Associates
Fund IV, Draper Fisher Partners IV and Betsy Atkins, collectively, the Bridge
Investors. Pursuant to that Note and Warrant Purchase Agreement, the Bridge
Investors agreed to loan us an aggregate of $1,000,000 accruing interest at a
rate of 1% plus the prime rate, in exchange for a promissory note, which would
either convert into our securities upon our next round of equity financing or be
repaid by June 30, 1999 and warrants to purchase an aggregate of 15,000 shares
of Series E Preferred Stock.
60
<PAGE> 63
Selectica Configurators India Pvt. Ltd. Beginning in June 1997, Selectica
Configurators India Pvt. Ltd., Selectica India, an Indian corporation, has
conducted research and development and quality assurance operations in India for
us. This company was owned by the parents of Rajen Jaswa, our President and
Chief Executive Officer. We paid $51,000 and $303,000 in fiscal years 1998 and
1999, respectively for consulting services. On July 1, 1999, we purchased
637,500 previously unissued shares of Selectica India. Following this purchase,
we owned 99.997% of the outstanding shares of SCIPL and Mr. Jaswa's parents own
the remaining .003%.
Employment Agreements and Bonuses. In August 1996, we entered into
employment agreements with Mr. Jaswa and Dr. Mittal. These agreements are
substantially similar in form and provide for employment on an "at will" basis
and severance payments in an amount equal to 12 months salary in the event that
these employees are terminated without cause. In June 1999, we paid Dr. Mittal a
bonus of $544,000 in exchange for services rendered to us since our inception.
Catalogics. In July 1996, we purchased all of the outstanding shares of
Catalogics. Catalogics was founded and was majority owned by Dr. Mittal, our
Chief Technology Officer. We exchanged 2,750,000 shares of our common stock for
3,250,000 shares of Catalogics common stock that was owned by Dr. Mittal. Of the
2,750,000 shares of our common stock issued to Dr. Mittal, 1,250,000 shares were
subject to a repurchase right by us. The repurchase right lapses over 48 months
beginning July 1, 1996. The fair value of the 1,250,000 shares of common stock
subject to repurchase was $12,500. After our purchase of all of the capital
stock of Catalogics from Dr. Mittal and the other Catalogics shareholder, we
owned all the stock of Catalogics, and Catalogics became a wholly owned
subsidiary.
Loans. In connection with our start-up phase, on July 25, 1996, Mr. Jaswa
loaned to us the principal sum of $50,000 which accrued interest at a rate of 2%
plus the prime rate compounded annually. Such loan was repaid in January 1997 in
connection with the issuance of our Series B Preferred Stock. On November 4,
1999, Daniel A. Carmel exercised his option to purchase 400,000 shares of common
stock. He paid for those shares with full recourse promissory notes for
$1,000,000 bearing 6.02% annual interest, secured by the purchased shares. On
October 15, 1999, Stephen Bennion exercised his option to purchase 300,000
shares of common stock. He paid for those shares with a full recourse promissory
note for $750,000 bearing 6.02% annual interest, secured by the purchased
shares. On October 25, 1999, Charles Pendell exercised his option to purchase
375,000 shares of common stock. He paid for these shares with full recourse
promissory notes for $262,500 bearing 6.02% annual interest, secured by the
purchased shares. On December 15, 1999 Dr. Mittal exercised his options to
purchase 240,000 shares of common stock. He paid for those shares with two full
recourse promissory notes for $2,300,000 and $100,000 respectively each bearing
6.20% annual interest, secured by the purchased shares. On December 15, 1999 Mr.
Jaswa exercised his options to purchase 240,000 shares of common stock. He paid
for those shares with two full recourse promissory notes for $2,300,000 and
$100,000 respectively each bearing 6.20% annual interest, secured by the
purchased shares.
Repurchase of Common Stock. In June 1999, we purchased 228,200 shares of
our common stock from Dr. Mittal at a price of $2.00 per share.
Indemnification. We have entered into an indemnification agreement with
each of our officers and directors. See "Management -- Indemnification" for a
description of the indemnification available to our officers and directors under
our Second Amended and Restated Certificate of Incorporation, to be effective
after the closing of this offering and our bylaws.
61
<PAGE> 64
PRINCIPAL STOCKHOLDERS
The following table presents selected information regarding beneficial
ownership of our outstanding common stock as of December 31, 1999, and as
adjusted to reflect the sale of the common stock being sold in this offering and
the private placement for:
- each of our directors, our chief executive officer and our four other
highest-paid executive officers;
- all of our directors and executive officers as a group; and
- each other person known by us to own beneficially more than 5% of our
common stock.
Except as otherwise indicated, we believe that the beneficial owners of the
common stock listed below, on the information furnished by such owners, have
sole voting power and investment power with respect to such shares. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned by a
person and the percent ownership of that person, shares of common stock subject
to options or warrants held by that person that are currently exercisable or
will become exercisable within 60 days after December 31, 1999 are deemed
outstanding, while such shares are not deemed outstanding for purposes of
computing percent ownership of any other person. Percent of beneficial ownership
is based upon 28,156,334 shares of our common stock outstanding as of December
31, 1999, as adjusted to reflect the conversion of all outstanding shares of
preferred stock into common stock upon the closing of this offering.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option. We and Dr. Sanjay Mittal, our Chief Technical
Officer, have granted the underwriters an option to purchase up to 600,000
shares to cover over-allotments, if any.
62
<PAGE> 65
Unless otherwise indicated, the address for each listed stockholder is: c/o
Selectica, Inc., 3 West Plumeria Drive, San Jose, California 95134. To our
knowledge, except as indicated in the footnotes to this table and under
applicable community property laws, the persons or entities identified in this
table have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them. The percentages contained in the
"After Offering" column reflects the shares sold in the private placement and
assumes that the underwriters do not exercise their over-allotment option for up
to 600,000 additional shares.
<TABLE>
<CAPTION>
PERCENT OF SHARES
OUTSTANDING
SHARES -------------------
BENEFICIALLY OWNED PRIOR TO AFTER
NAME OF BENEFICIAL OWNER PRIOR TO OFFERING OFFERING OFFERING
------------------------ ------------------ -------- --------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Rajen Jaswa(1).......................................... 2,551,250 9.06% 7.69%
Dr. Sanjay Mittal(2).................................... 3,053,050 10.84% 9.21%
Dr. S.S. Sundarajan(3).................................. 75,000 * *
Ashish Mathur(4)........................................ 500,000 1.75% 1.50%
Stephen Bennion......................................... 322,820 1.13% *
Daniel A. Carmel........................................ 457,051 1.60% 1.38%
Charles Pendell......................................... 375,000 1.31% 1.13%
Betsy Atkins(5)......................................... 257,493 * *
Robin Richards Donohoe(6)............................... 3,981,995 14.14% 12.01%
John Fisher(7).......................................... 3,620,290 12.85% 10.92%
Michael Lyons(8)........................................ 2,677,185 9.51% 8.07%
Thomas Neustaetter(9)................................... 22,820 * *
5% SHAREHOLDERS
Draper International India, L.P......................... 3,981,995 14.14% 12.01%
Entities associated with Draper Fisher Jurveston(10).... 3,690,283 13.10% 11.13%
Entities associated with Zilkha Venture Partners(11).... 2,677,185 9.51% 8.07%
Entities associated with Chaterjee Management
Company(12)........................................... 1,453,999 5.16% 4.39%
All executive officers and directors as a group (12
persons)(13).......................................... 17,963,947 63.30% 53.81%
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 10,000 shares of common stock issuable pursuant to options
exercisable within 60 days of December 31, 1999. As of December 31, 1999,
we had the right to repurchase 250,000 of Mr. Jaswa's shares and options to
purchase shares.
(2) Includes 300,000 shares of common stock held by Smita Mittal and Shikha
Mittal, Dr. Mittal's daughters and 10,000 shares of common stock issuable
pursuant to options exercisable within 60 days of December 31, 1999. Dr.
Mittal has granted the underwriters a 30-day option to purchase up to
150,000 shares to cover over-allotments, if any. If such option is
exercised in full, following completion of the offering. Dr. Mittal will
beneficially own 2,903,050 or 8.75% of our common stock. As of December 31,
1999, we had the right to repurchase 250,000 of Dr. Mittal's shares and
options to purchase shares.
(3) Includes 75,000 shares of common stock issuable pursuant to options
exercisable within 60 days of December 31, 1999.
(4) Includes 100,000 shares of common stock issuable pursuant to options
exercisable within 60 days of December 31, 1999.
63
<PAGE> 66
(5) Includes 2,250 shares of common stock issuable pursuant to a warrant
exercisable within 60 days of December 31, 1999. Ms. Atkins address is 10
Edgewater Drive, Penthouse F, Coral Gables, Florida 33133.
(6) Includes 3,978,995 shares held by Draper International India, L.P., located
at 50 California Street, Suite 2925, San Francisco, California 94025. Ms.
Richards Donohoe and Mr. William Draper have power to vote and dispose of
shares held by Draper International India, L.P. Ms. Richards Donohoe, a
general partner of Draper International India, L.P., disclaims beneficial
ownership of such shares except to the extent of her pecuniary interests
therein.
(7) This number includes:
- 3,251,687 shares and a warrant to purchase 9,068 shares of common stock
issuable pursuant to a warrant exercisable within 60 days of December 31,
1999 held by Draper Fisher Associates IV, L.P.;
- 244,750 shares and a warrant to purchase 682 shares of common stock
issuable pursuant to a warrant exercisable within 60 days of December 31,
1999 held by Draper Fisher Partners IV L.L.C.; and
- 114,103 shares held by Mr. John Fisher. Mr. Fisher is either a managing
member of the entities listed above or a managing member of the general
partner of the entities listed above.
Timothy Draper, John Fisher and Steve Jurveston have the power to vote and
dispose of shares held by Draper Fisher Associates IV L.P. and Draper
Fisher Partners IV L.L.C. Mr. Fisher disclaims beneficial ownership of such
shares except to the extent of his pecuniary interests therein. The address
of these individuals and entities is Draper Fisher Jurveston, 400 Seaport
Court, Suite 250, Redwood City, California 94063.
(8) Includes 2,448,979 shares held by Selectica L.P. and 228,206 shares held by
Zilkha Venture Partners L.P. John P. Rigas, Donald Zilkha and Michael Lyons
have the power to vote and dispose of shares held by Selectica L.P. and
Zilkha Venture Partners. Mr. Lyons, a member of Zilkha Venture Investments,
LLC, the General Partner of both of the entities in the preceding sentence,
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interests therein. Mr. Lyons address is Zilkha Ventures, 1510
Page Mill Road, Palo Alto, California 94304.
(9) Mr. Neustaetter's address is 888 7th Avenue, Suite 3000, New York, New York
10106.
(10) This number includes:
- 3,251,687 shares and a warrant to purchase 9,068 shares of common stock
issuable pursuant to a warrant exercisable within 60 days of December 31,
1999 held by Draper Fisher Associates IV, L.P.;
- 244,750 shares and a warrant to purchase 682 shares of common stock
issuable pursuant to a warrant exercisable within 60 days of December 31,
1999 held by Draper Fisher Partners IV L.L.C.;
- 114,103 shares held by Mr. John Fisher. Mr. Fisher is either a managing
member of the entities listed above or a managing member of the general
partner of the entities listed above;
- 45,461 shares held by Ms. Polly Draper. Ms. Draper is the sister of Tim
Draper. Mr. Draper is either a managing member of the entities listed
above or a managing member of the general partner of the entities listed
above;
- 22,821 shares held by Mr. Steve Jurveston. Mr. Jurveston is either a
managing member of the entities listed above or a managing member of the
general partner of the entities listed above;
64
<PAGE> 67
- 1,141 shares held by the Fonstad Living Trust Dated March 26, 1999. Ms.
Fonstad is either a member of the entities listed above or a member of
the general partner of the entities listed above; and
- 570 shares held by Mr. Warren Packard. Mr. Packard is either a member of
the entities listed above or a member of the general partner of the
entities listed above.
Mr. Fisher disclaims beneficial ownership of such shares except to the
extent of his pecuniary interests therein. The address of these individuals
and entities is Draper Fisher Jurveston, 400 Seaport Court, Suite 250,
Redwood City, California 94063.
(11) This number includes the shares beneficially owned by the persons and
entities described in footnote 8.
(12) Includes 624,959 shares held by Winston Partners II, LLC and 829,040 shares
held by Winston Partners, L.P. Dr. Purnendu Chaterjee has the power to vote
and dispose of shares held by Winston Partners II, LLC and Winston Partners
L.P. Dr. Chaterjee disclaims beneficial ownership of such shares except to
the extent of his pecuniary interests therein.
(13) This number includes the shares beneficially owned by the persons and
entities described in the footnotes above and includes (a) warrants to
purchase an aggregate of 9,750 shares of common stock issuable pursuant to
warrants exercisable within 60 days of December 31, 1999 and (b) 215,000
shares of common stock issuable pursuant to options exercisable within 60
days of December 31, 1999.
65
<PAGE> 68
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this offering, we will be authorized to issue
150,000,000 shares of common stock, and 10,000,000 shares of undesignated
preferred stock. The following is a summary description of our capital stock.
Our bylaws and our Second Amended and Restated Certificate of Incorporation, to
be effective after the closing of this offering, provide further information
about our capital stock.
COMMON STOCK
As of December 31, 1999, there were 28,156,334 shares of common stock
outstanding, as adjusted to reflect the conversion of all outstanding shares of
preferred stock into common stock upon the closing of this offering and the
exercise of warrants to purchase 253,879 shares of common stock that will
terminate upon the consummation of this offering, that were held of record by
approximately 196 stockholders. After giving effect to the sale of the shares of
common stock to the public offered in this prospectus and in the private
placement, there will be 33,156,334 shares of common stock outstanding, assuming
no exercise of the underwriters' over-allotment option and assuming no exercise
after December 31, 1999 of outstanding options or warrants.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive dividends, if any, as may be declared from time to time by
the board of directors out of funds legally available. See "Dividend Policy." In
the event of our liquidation, dissolution or winding up, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable, and the shares of common stock to be issued upon
completion of this offering will be fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to fix the rights, preferences, privileges and related restrictions, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of the series. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control of us without further action by the stockholders and may
adversely affect the voting and other rights of the holders of common stock. The
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others. At present, we have no plans to issue any of our
preferred stock.
WARRANTS
Immediately following the closing of this offering there will be
outstanding warrants to purchase a total of 820,408 shares of common stock at a
weighted average exercise price of $9.79 per share assuming an exercise price of
$10.00 per share for one warrant to purchase 800,000 shares of common stock.
20,408 of the warrants expire in April 2005, and 800,000 of the warrants expire
in January 2002.
66
<PAGE> 69
PRIVATE PLACEMENT WITH SAMSUNG SDS
On February 1, 2000, we entered into a stock purchase agreement with
Samsung SDS under which, contingent upon and immediately following consummation
of the sale of shares in this offering, Samsung agreed to purchase 1,000,000
shares of our common stock in a private placement at a price per share equal to
96% of the "Price to Public" appearing on the cover page of this prospectus.
Samsung has agreed not to sell, including any short sale, grant any option to
purchase or otherwise transfer or dispose of any of our securities held by it
for a period of one year following the closing of the private placement, other
than hedging transactions entered into beginning six months following the
closing of the private placement.
REGISTRATION RIGHTS
After this offering and the private placement, the holders of approximately
19,010,957 shares of common stock will be entitled to rights with respect to the
registration of these shares under the Securities Act. Under the terms of the
agreement between us and the holders of these registrable securities, if we
propose to register any of our securities under the Securities Act, either for
our own account or for the account of other security holders exercising
registration rights, these holders are entitled to notice of registration and
are entitled to include their shares of common stock in the registration.
Holders of 18,010,957 shares of the registrable securities are also entitled to
specified demand registration rights under which they may require us to file a
registration statement under the Securities Act at our expense with respect to
our shares of common stock, and we are required to use our best efforts to
effect this registration. Further, the holders of these demand rights may
require us to file additional registration statements on Form S-3. All of these
registration rights are subject to conditions and limitations, among them the
right of the underwriters of an offering to limit the number of shares included
in the registration and our right not to effect a requested registration within
six months following the initial offering of our securities, including this
offering.
ANTI-TAKEOVER PROVISIONS
Selected provisions of Delaware law, and our certificate of incorporation
and bylaws, effective upon the closing of this offering, could make more
difficult the acquisition of us by means of a tender offer or a proxy contest
and the removal of incumbent officers and directors. These provisions,
summarized below, are expected to discourage particular types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of us to first negotiate with us. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure us
outweigh the disadvantages of discouraging these proposals because, among other
things, negotiation of these proposals could result in an improvement of their
terms. However, these provisions could have the effect of discouraging others
from making tender offers for our shares and, as a consequence, they may also
inhibit fluctuations in the market price of our shares that could result from
actual or rumored takeover attempts.
Stockholder Meetings. Under our bylaws, only our board of directors, the
Chairman of the Board and the Chief Executive Officer may call special meetings
of stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of our board of
directors or a related committee.
67
<PAGE> 70
Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. Generally, Section 203 of the
Delaware General Corporation Law prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
- before the date of the business combination, the transaction is approved
by the board of directors of the corporation;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the outstanding stock; or
- on or after the date the transaction is approved by the board and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock. The
existence of this provision would be expected to have an anti-takeover effect
with respect to transactions not approved in advance by our board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
Classified Board of Directors. Our certificate of incorporation provides
that our board of directors will be divided into three classes of directors
serving staggered three-year terms. As a result, only one of the three classes
of our board of directors will be elected each year. The classification system
of electing directors may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of us and may maintain the
incumbency of our board of directors by increasing the difficulty of replacing a
majority of the directors.
Elimination of Stockholder Action by Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for our board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to obtain control of us.
Amendment of Restated Charter. The amendment of any of the above provisions
would require approval by holders of at least 66 2/3% of our outstanding common
stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is U.S. Stock
Transfer Corporation.
NASDAQ NATIONAL MARKET LISTING
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "SLTC."
68
<PAGE> 71
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and the private placement, we will have
33,156,334 shares of common stock outstanding, assuming no exercise of options
or warrants after December 31, 1999. Of these shares, the 4,000,000 shares sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares held by persons
that directly or indirectly control, or are controlled by, or are under common
control with us, may generally only be sold in compliance with the limitations
of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 28,156,334 shares of common stock are deemed restricted
shares under Rule 144. The number of shares of common stock available for sale
in the public market is limited by restrictions under the Securities Act and
lock-up agreements under which the holders of the shares have agreed not to sell
or dispose of any of their shares for a period of 180 days after the date of
this prospectus without the prior written consent of Credit Suisse First Boston
Corporation. On the date of this prospectus, no shares other than the 4,000,000
shares being sold in this offering will be eligible for sale. Beginning 180 days
after the date of this prospectus, or earlier with the consent of Credit Suisse
First Boston Corporation, 25,216,753 restricted shares will become available for
sale in the public market subject to the limitations of Rule 144 of the
Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person, or persons whose shares are
aggregated, who has beneficially owned restricted shares for at least one year,
including a person who may be deemed an affiliate, is entitled to sell within
any three-month period a number of shares of common stock that does not exceed
the greater of 1% of the then-outstanding shares of our common stock,
approximately 343,563 shares after giving effect to this offering, and the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding this sale. Sales under Rule 144 of the
Securities Act are subject to restrictions relating to manner of sale, notice
and the availability of current public information about us. A person who is not
our affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least two years, would be entitled to sell
these shares immediately following this offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of Rule
144 of the Securities Act. However, the transfer agent may require an opinion of
counsel that a proposed sale of shares comes within the terms of Rule 144 of the
Securities Act before effecting a transfer of these shares.
Before this offering, there has been no public market for our common stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional common stock will have on the
market price of our common stock. Nevertheless, sales of substantial amounts of
these shares in the public market, or the perception that these sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through an offering of our equity
securities.
OPTIONS
As of December 31, 1999, options to purchase a total of 2,180,815 shares of
common stock, all of which were issued under the 1996 Stock Plan, were
outstanding and exercisable. All of the shares subject to options are subject to
lock-up agreements. An additional 371,077 shares of common stock were available
as December 31, 1999 for future option grants or direct issuances under the 1996
Stock Plan. In addition, in November 1999, 1,000,000 shares were reserved for
issuance under our 1999 Equity Incentive Plan and 2,200,000 shares were reserved
for issuance under our 1999 Employee Stock Purchase Plan. See
"Management -- Employee Benefit Plans -- 1996 Stock Plan,"
69
<PAGE> 72
"-- 1999 Equity Incentive Plan" and "-- 1999 Employee Stock Purchase Plan" and
Note 10 of Notes to Consolidated Financial Statements.
Rule 701 under the Securities Act provides that shares of common stock
acquired on the exercise of outstanding options may be resold by persons other
than our affiliates, beginning 90 days after the date of this prospectus,
subject only to the manner of sale provisions of Rule 144, and by affiliates,
beginning 90 days after the date of this prospectus, subject to all provisions
of Rule 144 except its one-year minimum holding period. We intend to file one or
more registration statements on Form S-8 under the Securities Act to register
all shares of common stock subject to outstanding stock options and common stock
issued or issuable under our 1999 Stock Plan.
We expect to file the registration statement covering shares offered under
the 1996 Stock Plan, the 1999 Employee Stock Purchase Plan and the 1999 Equity
Incentive Plan approximately 30 days after the closing of this offering. These
registration statements are expected to become effective upon filing. Shares
covered by these registration statements will then be eligible for sale in the
public markets, subject to the lock-up agreements.
WARRANTS
As of December 31, 1999, we had outstanding warrants to purchase 1,074,287
shares of common stock. When these warrants are exercised and the exercise price
is paid in cash, the shares must be held for one year before they can be sold
under Rule 144. All warrants to purchase shares of common stock contain "net
exercise provisions." These provisions allow a holder to exercise a warrant for
a lesser number of shares of common stock in lieu of paying cash. The number of
shares which would be issued in this case would be based upon the market price
of the common stock at the time of the net exercise. If the warrant had been
held for at least one year, the shares of common stock could be publicly sold
under Rules 144 and 145. After the lock-up agreements described above expire,
warrants to purchase 20,408 shares of our common stock, which also contain net
exercise provisions, will have been outstanding for at least one year.
70
<PAGE> 73
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
Thomas Weisel Partners LLC, U.S. Bancorp Piper Jaffray Inc. and E*OFFERING Corp.
are acting as representatives, the following respective number of shares of
common stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Thomas Weisel Partners LLC..................................
U.S. Bancorp Piper Jaffray Inc..............................
E*OFFERING Corp.............................................
---------
Total............................................. 4,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We and the selling stockholder have granted to the underwriters a 30-day
option to purchase on a pro rata basis up to 450,000 additional shares from us
and 150,000 outstanding shares from the selling stockholder at the initial
public offering price less the underwriting discounts and commissions. This
option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
and the selling stockholder will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us................. $ $ $ $
Expenses payable by us................. $ $ $ $
Underwriting Discounts and
Commissions paid by selling
stockholder............................ $-- $ $-- $
Expenses payable by the selling
stockholder............................ $-- $ $-- $
</TABLE>
71
<PAGE> 74
In addition, Credit Suisse First Boston Corporation will receive from us an
aggregate fee equal to 3% of the gross proceeds from the common stock offered to
Samsung SDS Co. Ltd. in a private placement, which is scheduled to close
immediately following the consummation of this offering.
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers and directors and substantially all of our stockholders
have agreed that we and they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any of our common stock, or publicly disclose
the intention to make any such offer, sale, pledge, disposition or filing,
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus, except, in our case,
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.
The underwriters have reserved for sale, at the initial public offering
price, up to 200,000 shares of common stock, to be distributed by E*OFFERING,
for employees, directors and other persons associated with us who have expressed
an interest in purchasing common stock in the offering. The number of shares
available for sale to the general public in the offering will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
terms as the other shares.
We and the selling stockholder have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments which
the underwriters may be required to make in that respect.
We have made application to list our shares of common stock on The Nasdaq
Stock Market's National Market under the symbol "SLTC."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined by negotiation between us
and the underwriters. The principal factors to be considered in determining the
public offering price include:
- the information set forth in this prospectus and otherwise available to
the underwriters;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker/dealer in December 1998. Since December
1998, Thomas Weisel Partners has acted as a lead or co-manager on numerous
public offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with us
under the underwriting agreement entered into in connection with this offering.
72
<PAGE> 75
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
73
<PAGE> 76
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws, (ii) where required
by law, that the purchaser is purchasing as principal and not as agent, and
(iii) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recession or rights of action under the civil liability provisions of
the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or these persons. All or a substantial portion of the assets of the
issuer and these persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or these persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. Such report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
74
<PAGE> 77
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
75
<PAGE> 78
LEGAL MATTERS
The validity of the common stock being offered will be passed upon for
Selectica by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California. The underwriters have been represented by Wilson Sonsini
Goodrich & Rosati, Palo Alto, California. As of the date of this prospectus,
some members and employees of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP beneficially owned an aggregate of 28,631 shares of our stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at March 31, 1998 and 1999 and December 31,
1999 and for the period from June 6, 1996 (inception) through March 31, 1997,
and for each of the two years in the period ended March 31, 1999, and for the
nine months ended December 31, 1999 as described in their report. We have
included our financial statements and schedule in the prospectus and elsewhere
in the registration statement in reliance on Ernst & Young LLP's report, given
upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
being offered. This prospectus does not contain all of the information presented
in the registration statement and the exhibits to the registration statement.
For further information with respect to Selectica and our common stock we are
offering, reference is made to the registration statement and the exhibits filed
as a part of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document referred to may be
only summaries of these documents. The exhibits to this registration statement
should be referenced for the complete contents of these contracts and documents.
Each statement is qualified in all respects by reference to the exhibit. The
registration statement, including the exhibits, may be inspected without charge
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
all or any part may be obtained from this office after payment of fees
prescribed by the Commission. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants, including us, that file electronically with the
Commission. The address of the site is www.sec.gov.
76
<PAGE> 79
SELECTICA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 80
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Selectica, Inc.
We have audited the accompanying consolidated balance sheets of Selectica,
Inc. as of March 31, 1998 and 1999 and December 31, 1999, and the related
statements of operations, stockholders' equity, and cash flows for the period
from June 6, 1996 (inception) through March 31, 1997 and for each of the two
years in the period ended March 31, 1999, and for the nine months ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Selectica, Inc.
at March 31, 1998 and 1999, and December 31, 1999, and the consolidated results
of its operations and its cash flows for the period from June 6, 1996
(inception) through March 31, 1997 and for each of the two years in the period
ended March 31, 1999, and for the nine months ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Jose, California
January 26, 2000,
F-2
<PAGE> 81
SELECTICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
MARCH 31, EQUITY
-------------------------- DECEMBER 31, DECEMBER 31,
1998 1999 1999 1999
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 206,040 $ -- $ 14,123,645
Short-term investments.................................... 297,539 -- --
Accounts receivable, net of allowance for doubtful
accounts of $29,750 at March 31, 1998, $104,000 at March
31, 1999, and $254,000 at December 31, 1999............. 387,944 1,634,577 3,539,220
Advances to related party................................. 1,620 17,730 58,519
Prepaid expenses and other current assets................. 30,400 166,454 601,494
----------- ------------ ------------
Total current assets...................................... 923,543 1,818,761 18,322,878
Property and equipment, net................................. 292,583 1,012,469 3,649,373
Goodwill, net of amortization of $58,975 at March 31, 1998,
$92,675 at March 31, 1999, and $112,950 at December 31,
1999...................................................... 77,025 53,325 35,550
Advances to related party, noncurrent....................... -- 155,000 --
Other assets................................................ 63,926 53,926 1,316,924
Investments, restricted..................................... -- 99,845 99,845
Development agreement, net of amortization of none at March
31, 1998 and 1999 and $472,242 at December 31, 1999....... -- -- 3,695,026
----------- ------------ ------------
Total assets................................................ $ 1,357,077 $ 3,193,326 $ 27,119,596
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 101,780 $ 585,610 $ 515,183
Accrued payroll and related liabilities................... 365 258,105 956,838
Other accrued liabilities................................. -- 328,609 2,038,859
Deferred revenues......................................... 383,182 1,285,144 3,961,265
Advances from officers.................................... 16,023 332 --
----------- ------------ ------------
Total current liabilities................................... 501,350 2,457,800 7,472,145
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $0.0001 par value:
Authorized shares -- 25,000,000 at March 31, 1998 and
1999, 25,500,000 at December 31, 1999 and pro forma.
Issued and outstanding shares -- 8,703,126 at March 31,
1998, 13,567,061 at March 31, 1999 and 19,710,957 at
December 31, 1999 and none pro forma (liquidation
preference of $38,800,367 at December 31, 1999)........... 870 1,356 1,971 $ --
Common stock, $0.0001 par value:
Authorized shares -- 40,000,000 at December 31, 1999 and
75,000,000 pro forma Issued and outstanding -- 5,520,561
at March 31, 1998, 6,237,877 at March 31, 1999,
8,191,498 at December 31, 1999, and 27,902,455 pro
forma................................................... 552 624 819 2,790
Additional paid-in capital.................................. 4,211,023 11,878,365 57,057,135 57,057,135
Deferred compensation....................................... (4,386) (255,586) (6,011,456) (6,011,456)
Stockholder notes receivable................................ -- -- (7,015,750) (7,015,750)
Accumulated deficit......................................... (3,352,332) (10,889,233) (24,385,268) (24,385,268)
----------- ------------ ------------ ------------
Total stockholders' equity.................................. 855,727 735,526 19,647,451 $ 19,647,451
=========== ============ ============ ============
Total liabilities and stockholders' equity.................. $ 1,357,077 $ 3,193,326 $ 27,119,596
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 82
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
FROM
JUNE 6, 1996
(INCEPTION) NINE MONTHS ENDED
THROUGH YEARS ENDED MARCH 31, DECEMBER 31,
MARCH 31, ------------------------- --------------------------
1997 1998 1999 1998 1999
------------ ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License......................... $ 50,000 $ 169,505 $ 1,656,015 $ 970,007 $ 5,180,625
Services...................... 4,500 -- 1,788,467 1,010,832 4,258,957
--------- ----------- ----------- ----------- ------------
Total revenues........... 54,500 169,505 3,444,482 1,980,839 9,439,582
Cost of revenues:
License....................... 2,500 9,000 183,715 117,877 258,828
Services...................... -- -- 876,017 481,401 5,038,159
Services -- related party..... -- 51,200 302,511 152,511 135,000
--------- ----------- ----------- ----------- ------------
Total cost of revenues... 2,500 60,200 1,362,243 751,789 5,431,987
--------- ----------- ----------- ----------- ------------
Gross profit.................... 52,000 109,305 2,082,239 1,229,050 4,007,595
Research and development...... 163,051 1,946,560 3,886,750 2,494,828 3,603,132
Sales and marketing........... 61,873 1,054,798 4,402,868 2,668,549 8,947,134
General and administrative.... 76,623 292,494 1,380,554 857,659 2,781,539
Amortization of development
agreement.................. -- -- -- -- 472,242
Amortization of deferred
compensation............... 6,256 3,541 47,500 22,591 589,590
--------- ----------- ----------- ----------- ------------
Total operating expenses........ 307,803 3,297,393 9,717,672 6,043,627 16,393,637
--------- ----------- ----------- ----------- ------------
Loss from operations............ (255,803) (3,188,088) (7,635,433) (4,814,577) (12,386,042)
Other income (expense), net..... (1,600) 5,091 -- -- (1,765)
Interest income................. 6,520 81,548 127,388 116,038 381,060
Interest expense................ -- -- (28,856) (22,419) (59,856)
--------- ----------- ----------- ----------- ------------
Loss before provision for income
taxes......................... (250,883) (3,101,449) (7,536,901) (4,720,958) (12,066,603)
Provision for income taxes...... -- -- -- -- 50,000
--------- ----------- ----------- ----------- ------------
Net loss........................ (250,883) (3,101,449) (7,536,901) (4,720,958) (12,116,603)
Deemed dividend on Series E
convertible preferred stock... -- -- -- -- 925,314
Net loss applicable to common
stockholders.................. $(250,883) $(3,101,449) $(7,536,901) $(4,720,958) $(13,041,917)
========= =========== =========== =========== ============
Basic and diluted, net loss per
share applicable to common
stockholders.................. $ (0.15) $ (0.91) $ (1.58) $ (1.05) $ (2.47)
Weighted-average shares of
common stock outstanding used
in computing basic and
diluted, net loss per share
applicable to common
stockholders.................. 1,633,988 3,425,395 4,782,235 4,479,472 5,270,056
Pro forma basic and diluted, net
loss per share applicable to
common stockholders........... $ (0.44) $ (0.58)
Weighted-average shares used in
computing pro forma basic and
diluted, net loss per share... 17,281,930 22,454,553
</TABLE>
See accompanying notes.
F-4
<PAGE> 83
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK ADDITIONAL
--------------------- ------------------ PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
----------- ------- --------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founder for cash at
$0.01 per share................................ -- $ -- 1,250,000 $125 $ 12,375 $ --
Issuance of common stock to founder in exchange
for services.................................. -- -- 1,250,000 125 12,375 --
Issuance of common stock in exchange for
Catalogics.................................... -- -- 1,500,000 150 14,850 --
Issuance of common and convertible preferred
stock in exchange for the assets of Alma
Enterprises................................... 200,000 20 100,000 10 19,193 --
Exercise of stock options by employees and
consultants................................... -- -- 562,500 56 5,544 --
Issuance of common stock to consultants in
exchange for services......................... -- -- 35,061 4 392 --
Issuance of stock to employees................. -- -- 473,000 47 3,853 --
Issuance of Series A convertible preferred
stock in July 1996 for cash at $0.091667 per
share......................................... 1,500,000 150 -- -- 137,350 --
Issuance of Series B convertible preferred
stock in January 1997 for cash at $0.26667 per
share (net of issuance costs of $5,000)....... 3,750,000 375 -- -- 994,625 --
Deferred compensation related to options
granted at less than fair value............... -- -- -- -- 14,183 (14,183)
Amortization of deferred compensation.......... -- -- -- -- -- 6,256
Net loss....................................... -- -- -- -- -- --
---------- ------ --------- ---- ----------- -----------
Balance at March 31, 1997...................... 5,450,000 545 5,170,561 517 1,214,740 (7,927)
Issuance of Series C convertible preferred
stock in October 1997 for cash at $0.922 per
share (net of issuance costs of $11,000)...... 3,253,126 325 -- -- 2,988,058 --
Exercise of stock options by employees and
consultants................................... -- -- 338,000 34 7,306 --
Issuance of common stock to consultants in
exchange for services......................... -- -- 12,000 1 919 --
Amortization of deferred compensation.......... -- -- -- -- -- 3,541
Net loss....................................... -- -- -- -- -- --
---------- ------ --------- ---- ----------- -----------
Balance at March 31, 1998...................... 8,703,126 870 5,520,561 552 4,211,023 (4,386)
Issuance of Series D convertible preferred
stock in June, July, and August 1998 for cash
at $1.47 per share (net of issuance costs of
$57,658)...................................... 4,863,935 486 -- -- 7,091,856 --
Exercise of stock options by employees and
consultants, net of repurchases............... -- -- 671,012 67 38,507 --
Issuance of common stock to consultants in
exchange for services......................... -- -- 46,304 5 42,565 --
Warrants issued in conjunction with credit
agreement..................................... -- -- -- -- 25,714 --
Deferred compensation related to options
granted at less than fair value............... -- -- -- -- 298,700 (298,700)
Compensation expense related to acceleration of
stock options................................. -- -- -- -- 170,000 --
Amortization of deferred compensation.......... -- -- -- -- -- 47,500
Net loss....................................... -- -- -- -- -- --
---------- ------ --------- ---- ----------- -----------
Balance at March 31, 1999...................... 13,567,061 1,356 6,237,877 624 11,878,365 (255,586)
<CAPTION>
STOCKHOLDER TOTAL
NOTES ACCUMULATED STOCKHOLDERS'
RECEIVABLE DEFICIT EQUITY
----------- ------------ -------------
<S> <C> <C> <C>
Issuance of common stock to founder for cash at
$0.01 per share................................ $ -- $ -- $ 12,500
Issuance of common stock to founder in exchange
for services.................................. -- -- 12,500
Issuance of common stock in exchange for
Catalogics.................................... -- -- 15,000
Issuance of common and convertible preferred
stock in exchange for the assets of Alma
Enterprises................................... -- -- 19,223
Exercise of stock options by employees and
consultants................................... -- -- 5,600
Issuance of common stock to consultants in
exchange for services......................... -- -- 396
Issuance of stock to employees................. -- -- 3,900
Issuance of Series A convertible preferred
stock in July 1996 for cash at $0.091667 per
share......................................... -- -- 137,500
Issuance of Series B convertible preferred
stock in January 1997 for cash at $0.26667 per
share (net of issuance costs of $5,000)....... -- -- 995,000
Deferred compensation related to options
granted at less than fair value............... -- -- --
Amortization of deferred compensation.......... -- -- 6,256
Net loss....................................... -- (250,883) (250,883)
---------- ------------ -----------
Balance at March 31, 1997...................... -- (250,883) 956,992
Issuance of Series C convertible preferred
stock in October 1997 for cash at $0.922 per
share (net of issuance costs of $11,000)...... -- -- 2,988,383
Exercise of stock options by employees and
consultants................................... -- -- 7,340
Issuance of common stock to consultants in
exchange for services......................... -- -- 920
Amortization of deferred compensation.......... -- -- 3,541
Net loss....................................... -- (3,101,449) (3,101,449)
---------- ------------ -----------
Balance at March 31, 1998...................... -- (3,352,332) 855,727
Issuance of Series D convertible preferred
stock in June, July, and August 1998 for cash
at $1.47 per share (net of issuance costs of
$57,658)...................................... -- -- 7,092,342
Exercise of stock options by employees and
consultants, net of repurchases............... -- -- 38,574
Issuance of common stock to consultants in
exchange for services......................... -- -- 42,570
Warrants issued in conjunction with credit
agreement..................................... -- -- 25,714
Deferred compensation related to options
granted at less than fair value............... -- -- --
Compensation expense related to acceleration of
stock options................................. -- -- 170,000
Amortization of deferred compensation.......... -- -- 47,500
Net loss....................................... -- (7,536,901) (7,536,901)
---------- ------------ -----------
Balance at March 31, 1999...................... -- (10,889,233) 735,526
</TABLE>
See accompanying notes.
F-5
<PAGE> 84
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK ADDITIONAL
--------------------- ------------------ PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
----------- ------- --------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Series E convertible preferred
stock in June, July, August, and October 1999
for cash at $4.382 per share (net of issuance
costs of $930,921)............................ 5,908,770 $ 591 $ -- $ -- $24,345,272 $ --
Issuance of Series E convertible preferred
stock in June 1999 at $4.382 per share in
exchange for convertible notes payable (net of
issuance costs of $48,173)..................... 229,876 23 -- -- 944,447 --
Repurchase of common stock held by founder..... (228,200) (23) (2,259) --
Warrants issued in connection with Series E
convertible preferred stock Financing......... -- -- -- -- 615,654 --
Warrants issued in connection with convertible
notes payable................................. -- -- -- -- 49,781 --
Compensation expense related to acceleration of
stock options................................. -- -- -- -- 65,625 --
Exercise of warrants issued in connection with
Series E preferred stock financing............ 5,250 1 -- -- 23,005 --
Warrants issued in connection with development
agreement..................................... -- -- -- -- 381,330 --
Exercise of stock options by employees, net of
repurchase.................................... -- -- 510,751 51 312,200 --
Exercise of stock by employees for notes....... -- -- 1,638,000 163 7,015,587 --
Issuance of common stock for services.......... -- -- 33,070 4 106,404 --
Issuance of Series E convertible stock for less
than fair value in October 1999............... -- -- -- -- 4,976,264 --
Deferred compensation related to options
granted at less than fair value............... -- -- -- -- 6,345,460 (6,345,460)
Amortization of deferred compensation.......... -- -- -- -- -- 589,590
Net loss....................................... -- -- -- -- -- --
---------- ------ --------- ---- ----------- -----------
Balance at December 31, 1999................... 19,710,957 $1,971 8,191,498 $819 $57,057,135 $(6,011,456)
========== ====== ========= ==== =========== ===========
<CAPTION>
STOCKHOLDER TOTAL
NOTES ACCUMULATED STOCKHOLDERS'
RECEIVABLE DEFICIT EQUITY
----------- ------------ -------------
<S> <C> <C> <C>
Issuance of Series E convertible preferred
stock in June, July, August, and October 1999
for cash at $4.382 per share (net of issuance
costs of $930,921)............................ -- $ -- 24,345,863
Issuance of Series E convertible preferred
stock in June 1999 at $4.382 per share in
exchange for convertible notes payable (net of
issuance costs of $48,173)..................... -- -- 944,470
Repurchase of common stock held by founder..... -- (454,118) (456,400)
Warrants issued in connection with Series E
convertible preferred stock Financing......... -- -- 615,654
Warrants issued in connection with convertible
notes payable................................. -- -- 49,781
Compensation expense related to acceleration of
stock options................................. -- -- 65,625
Exercise of warrants issued in connection with
Series E preferred stock financing............ -- -- 23,006
Warrants issued in connection with development
agreement..................................... -- -- 381,330
Exercise of stock options by employees, net of
repurchase.................................... -- -- 312,251
Exercise of stock by employees for notes....... (7,015,750) -- --
Issuance of common stock for services.......... -- -- 106,408
Issuance of Series E convertible stock for less
than fair value in October 1999............... -- (925,314) 4,050,950
Deferred compensation related to options
granted at less than fair value............... -- -- --
Amortization of deferred compensation.......... -- -- 589,590
Net loss....................................... -- (12,116,603) (12,116,603)
---------- ------------ -----------
Balance at December 31, 1999................... (7,015,750) $(24,385,268) $19,647,451
========== ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 85
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1996 YEARS ENDED NINE MONTHS ENDED
(INCEPTION) MARCH 31, DECEMBER 31,
THROUGH ------------------------- --------------------------
MARCH 31, 1997 1998 1999 1998 1999
-------------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................ $ (250,883) $(3,101,449) $(7,536,901) $(4,720,958) $(12,116,603)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.......................................... 8,563 59,359 208,947 110,371 713,230
Amortization.......................................... 25,275 33,700 33,700 17,775 17,775
Issuance of stock in exchange for services............ 22,396 920 42,570 42,570 371,420
Amortization of development agreement................. -- -- -- -- 472,242
Amortization of deferred compensation................. 6,256 3,541 47,500 22,591 589,590
Accrued interest on convertible notes converted to
convertible preferred stock......................... -- -- -- -- 7,317
In-process research and development................... 16,500 -- -- -- --
Warrants issued in conjunction with credit
agreement........................................... -- -- 25,714 25,714 --
Warrants issued in conjunction with debt financing.... -- -- -- -- 35,107
Accelerated vesting of stock options to employees..... -- -- 170,000 -- 65,625
Changes in assets and liabilities:
Accounts receivable................................. -- (387,944) (1,246,633) (843,258) (1,904,643)
Advances to related party........................... -- (1,620) (171,110) 420 264,211
Prepaid expenses and other current assets........... (7,765) (22,635) (136,054) (65,911) (435,040)
Other assets........................................ -- (51,427) -- 7,501 (1,262,998)
Accounts payable.................................... 25,870 75,910 483,830 57,335 (70,427)
Accrued payroll and related liabilities............. 164 202 257,740 116,076 698,733
Other accrued liabilities........................... -- -- 328,609 47,421 1,710,250
Deferred revenues................................... -- 383,182 901,962 868,508 2,676,121
Advances from officers.............................. 200 15,823 (15,691) (14,165) (332)
---------- ----------- ----------- ----------- ------------
Net cash used in operating activities................... (153,424) (2,992,438) (6,605,817) (4,328,010) (8,168,422)
INVESTING ACTIVITIES
Capital expenditures.................................... (53,405) (287,877) (928,833) (560,088) (3,350,134)
Purchases of available-for-sale investments............. (790,735) (8,569,135) (5,576,918) (5,576,918) --
Sales of available-for-sale investments................. 100,000 8,962,331 5,774,612 5,620,777 --
Acquisition of Catalogics, Inc.......................... (150,000) -- -- -- --
Acquisition of Selectica, India......................... -- -- -- -- (150,000)
---------- ----------- ----------- ----------- ------------
Net cash provided by (used in) investing activities..... (894,140) 105,319 (731,139) (516,229) (3,500,134)
FINANCING ACTIVITIES
Net proceeds from issuance of convertible preferred
stock................................................. 1,132,500 2,988,383 7,092,342 7,092,342 24,913,344
Exercise of warrants in exchange for preferred stock.... -- -- -- -- 23,006
Repurchase of common stock.............................. -- -- -- -- (456,400)
Proceeds from issuance of convertible notes............. -- -- -- -- 1,000,000
Proceeds from issuance of common stock.................. 12,500 7,340 38,574 31,753 312,251
---------- ----------- ----------- ----------- ------------
Net cash provided by financing activities............... 1,145,000 2,995,723 7,130,916 7,124,095 25,792,201
---------- ----------- ----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents.... 97,436 108,604 (206,040) 2,279,856 14,123,645
Cash and cash equivalents at beginning of the period.... -- 97,436 206,040 206,040 --
---------- ----------- ----------- ----------- ------------
Cash and cash equivalents at end of the period.......... $ 97,436 $ 206,040 $ -- $ 2,485,896 $ 14,123,645
========== =========== =========== =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.................................. $ -- $ -- $ 3,142 $ 15,102 $ 52,539
Issuance of stock in exchange for Catalogics, Inc....... $ 15,000 $ -- $ -- $ -- $ --
Issuance of stock in exchange for fixed assets.......... $ 19,223 $ -- $ -- $ -- $ --
Deferred compensation related to stock options.......... $ 14,183 $ -- $ 298,700 $ 285,849 $ 6,345,460
Convertible notes payable and accrued interest converted
to convertible preferred stock........................ $ -- $ -- $ -- $ -- $ 944,470
Warrants issued in conjunction with convertible notes
payable............................................... $ -- $ -- $ -- $ -- $ 49,781
Warrants issued in conjunction with convertible
preferred stock financing............................. $ -- $ -- $ -- $ -- $ 615,654
Warrants issued in connection with development
agreement............................................. $ -- $ -- $ -- $ -- $ 381,330
Issuance of stock in exchange for notes................. $ -- $ -- $ -- $ -- $ 7,015,750
</TABLE>
See accompanying notes.
F-7
<PAGE> 86
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Selectica, Inc. (the Company or Selectica) was incorporated in the state of
California on June 6, 1996. The Company was organized to develop and market
Internet selling system software for electronic commerce, sales force
automation, and build-to-order applications.
Unaudited Interim Consolidated Financial Statements
The accompanying unaudited interim consolidated financial statements for
the nine-month period ended December 31, 1998 have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, the accompanying unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the Company's
results of its operations for the nine months ended December 31, 1998.
Principles of Consolidation
The consolidated financial statements include all the accounts of the
Company and those of its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated.
Foreign Currency Transactions
Foreign currency transactions at foreign operations are measured using the
U.S. dollar as the functional currency. Accordingly, monetary accounts
(principally cash and cash equivalents, accounts receivable, accounts payable,
and accrued liabilities) are remeasured using the foreign exchange rate at the
balance sheet date. Operations accounts and non-monetary balance sheet accounts
are remeasured at the rate in effect at the date of transaction. The effects of
foreign currency remeasurement are reported in current operations and were
immaterial for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments, and accounts receivable. The Company places its
short-term investments in high-credit quality financial institutions. The
Company is exposed to credit risk in the event of default by these institutions
to the extent of the amount recorded on the balance sheet. As of December 31,
1999 all money market funds are invested in a single fund. Accounts receivable
are derived from revenues earned from customers primarily located
F-8
<PAGE> 87
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
in the United States. The Company performs ongoing credit evaluations of its
customers' financial condition and generally does not require collateral. The
Company maintains reserves for potential credit losses, and historically, such
losses have been immaterial.
Customer Concentrations
A limited number of customers have historically accounted for a substantial
portion of the Company's revenues.
Customers who accounted for at least 10% of total revenues were as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1997 YEARS ENDED NINE MONTHS ENDED
(INCEPTION) MARCH 31, DECEMBER 31,
THROUGH ----------------- --------------------
MARCH 31, 1997 1998 1999 1998 1999
-------------- --------- ---- ------------ ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BMW of North America............... * * 60% 69% *
Olicom, Inc. ...................... * * 10% 14% *
Hewlett Packard of Germany......... * 45% * * *
Ascend Communications, Inc. ....... * 27% * * *
InterVoice, Inc. .................. * 16% * * *
Insight Enterprises, Inc. ......... * 12% * * *
V*Mall Corporation................. 100% * * * *
Aspect Communications.............. * * * * 15%
3Com Corporation................... * * * * 13%
Fireman's Fund Insurance........... * * * * 13%
</TABLE>
- -------------------------
* Revenues were less than 10%.
Cash Equivalents and Short-Term Investments
Cash equivalents consist of short-term, highly liquid financial
instruments, principally money markets funds and commercial paper with
insignificant interest rate risk that are readily convertible to cash and have
maturities of three months or less from the date of purchase. Short-term
investments consist of money market funds and commercial paper that are readily
convertible to cash. As of December 31, 1999 all money market funds are invested
in a single fund. The fair market value, based on quoted market prices, of cash
equivalents and short-term investments is substantially equal to their carrying
value at March 31, 1998 and 1999, and at December 31, 1999.
Under the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," management classifies investments as available-for-sale at
the time of purchase and periodically reevaluates such designation. Unrecognized
gains or losses on available-for-sale securities are included, net of tax, in
stockholders' equity until their disposition. Realized gains and losses and
declines in value judged to be other than temporary on available-for-sale
securities are included in interest income. The cost of securities sold is based
on the specific-identification method.
F-9
<PAGE> 88
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets, generally the shorter of the lease term or three to five years.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price of acquired companies
over estimated fair values of tangible and intangible net assets acquired.
Goodwill is amortized on a straight-line basis over the estimated useful life,
generally five years. The carrying values of long-term assets and intangibles
are reviewed if facts and circumstances suggest that they may be impaired. If
this review indicates that carrying values of long-term assets, other
intangibles, and associated goodwill will not be recoverable based on projected
undiscounted future cash flows, carrying values are reduced to estimated fair
values by first reducing goodwill and second by reducing long-term assets and
other intangibles.
Revenue Recognition
The Company's revenues are derived from licenses for its software and
related services, which include implementation and integration, technical
support, training and consulting. The Company sells licenses and services both
together and separately. For contracts with multiple elements, and for which
vendor-specific objective evidence of fair value for the undelivered elements
exists, the Company recognizes revenue for the delivered elements based on the
residual contract value as prescribed by Statement of Position No. 98-9,
"Modification of SOP No. 97-2 with Respect to Certain Transactions."
License and services revenues on contracts involving significant
implementation, customization or services which are essential to the
functionality of the software are recognized over the period of each engagement,
primarily using the percentage-of-completion method. In cases where license fees
or service payments are contingent on acceptance, the Company defers recognition
of revenues until the acceptance criteria are met. The Company is using output
measures (milestones) to determine progress to completion for license and
service agreements that contain customer acceptance based on milestone
achievements. For all other license and service agreements accounted for using
the percentage-of-completion method, the Company is determining progress to
completion using input measure based on labor hours earned. The Company
classifies revenues for these arrangements as license revenues and services
revenues based on its estimates of fair value for each element and recognizes
the revenues based on the percentage-of-completion ratio for the arrangement. A
provision for estimated losses on engagements is made in the period in which the
loss becomes probable and can be reasonably estimated.
License revenues are recognized when persuasive evidence of an agreement
exists, delivery of the product has occurred, no significant Company obligations
with regard to implementation, customization or services, the fee is fixed or
determinable and collectibility is probable. Provisions for sales returns are
provided at the time of revenue recognition based on estimated returns. The
Company has not incurred material charges for product returns to date.
F-10
<PAGE> 89
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Services revenue primarily comprises revenue from consulting fees,
maintenance contracts and training. Services revenue from consulting and
training is recognized as the services are performed.
Maintenance contracts include the right to unspecified upgrades and ongoing
support. Maintenance revenues are deferred and recognized on a straight-line
basis, as services revenues, over the life of the related contract, which is
typically one year.
Customer billing occurs in accordance with contract terms. Customer
advances and amounts billed to customers in excess of revenue recognized are
recorded as deferred revenues. Amounts recognized as revenue in advance of
billing (typically under percentage-of-completion accounting) are recorded as
unbilled receivables.
Advertising Expense
The cost of advertising is expensed as incurred. Advertising expense for
the nine-month period ended December 31, 1999 was $193,024. Advertising expenses
were immaterial for all other periods presented.
Development Costs
Costs incurred in the research and development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established. The Company believes its current
process for developing software is essentially completed concurrently with the
establishment of technological feasibility; accordingly, software costs incurred
after the establishment of technological feasibility have not been material and,
therefore, have been expensed.
Comprehensive Loss
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130). FAS 130 establishes standards for the reporting and displaying of
comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after December
15, 1997. The Company adopted FAS 130 in the year ended March 31, 1999. The
Company had no items of other comprehensive income to report in any of the
periods presented.
Net Loss Per Share
Basic and diluted net loss per common share is presented in conformity with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS
128), for all periods presented. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 98, common stock and convertible
preferred stock issued or granted for nominal consideration prior to the
anticipated effective date of the Company's initial public offering must be
included in the calculation of basic and diluted net loss per common share as if
they had been outstanding for all periods presented. (see Note 14)
F-11
<PAGE> 90
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
In accordance with FAS 128, basic and diluted net loss per share have been
computed using the weighted-average number of shares of common stock outstanding
during the period, less shares subject to repurchase. Pro forma basic and
diluted net loss per share, as presented in the statements of operations, have
been computed as described above and also gives effect, under Securities and
Exchange Commission guidance, to the conversion of the convertible preferred
stock (using the if-converted method) from the original date of issuance.
The following table presents the computation of basic and diluted and pro
forma basic and diluted net loss per share:
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED
JUNE 6, 1996 YEARS ENDED MARCH 31, DECEMBER 31,
(INCEPTION) THROUGH ------------------------- --------------------------
MARCH 31, 1997 1998 1999 1998 1999
------------------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss applicable to common
stockholders..................... $ (250,883) $(3,101,449) $(7,536,901) $(4,720,958) $(13,041,917)
=========== =========== =========== =========== ============
Basic and diluted:
Weighted-average shares of common
stock outstanding.............. 3,933,538 5,243,255 5,987,019 5,918,686 6,606,041
Less weighted-average shares
subject to repurchase.......... (2,299,550) (1,817,860) (1,204,784) (1,439,214) (1,335,985)
----------- ----------- ----------- ----------- ------------
Weighted-average shares used in
computing basic and diluted,
net loss per share applicable
to common stockholders......... 1,633,988 3,425,395 4,782,235 4,479,472 5,270,056
=========== =========== =========== =========== ============
Basic and diluted, net loss per
share applicable to common
stockholders..................... $ (0.15) $ (0.91) $ (1.58) $ (1.05) $ (2.47)
=========== =========== =========== =========== ============
Pro forma:
Shares used above.............. 4,782,235 5,270,056
Pro forma adjustment to reflect
weighted-average effect of
the assumed conversion of
convertible preferred
stock........................ 12,499,695 17,184,497
----------- ------------
Shares used in computing pro
forma basic and diluted, net
loss per share applicable to
common stockholders.......... 17,281,930 22,454,553
=========== ============
Pro forma basic and diluted,
net loss per share applicable
to common stockholders....... $ (0.44) $ (0.58)
=========== ============
</TABLE>
The Company has excluded all outstanding stock options and shares subject
to repurchase by the Company from the calculation of basic and diluted net loss
per share because these securities are antidilutive for all periods presented.
Options and warrants to purchase 655,000, 1,279,600, 1,444,058, 1,354,059, and
2,455,102 shares of common stock for the period from June 6, 1996 (inception)
through March 31, 1997, for the years ended March 31, 1998 and 1999, and for the
nine-month periods ended December 31, 1998 and 1999, respectively, were not
included in the computation of
F-12
<PAGE> 91
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
diluted net loss per share applicable to common stockholders because the effect
would be antidilutive. Such securities, had they been dilutive, would have been
included in the computation of diluted net loss per share using the treasury
stock method.
Stock-Based Compensation
The Company accounts for employee stock-based compensation under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
Opinion No. 25), and related interpretations. Pro forma net loss, as presented
in Note 10, is a disclosure required by Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (FAS 123).
Segment Information
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (FAS 131),
in fiscal 1998. FAS 131 supersedes FAS 14, "Financial Reporting for Segments of
a Business Enterprise," and establishes standards for reporting information
about operating segments. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker or group in deciding
how to allocate resources and in assessing performance. The Company operates in
one segment, Internet selling system software for electronic commerce. The
Company primarily markets its products in the United States. For the fiscal year
ended March 31, 1998, sales to international locations, principally Europe,
represented 46% of total revenues. Foreign sales were less than 10% for all
other periods presented. Export revenues are attributable to countries based on
the location of the customers.
The Company holds long-lived assets in India with a net book value of
$263,219 at December 31, 1999.
Unaudited Pro Forma Stockholders' Equity
If the offering contemplated by this prospectus is consummated, each share
of convertible preferred stock outstanding will automatically be converted into
one share of common stock. Unaudited pro forma stockholders' equity at December
31, 1999, as adjusted for the assumed conversion of convertible preferred stock
based on the shares of convertible preferred stock outstanding at December 31,
1999, is disclosed on the balance sheet.
Unaudited basic and diluted pro forma net loss per share, as presented in
the consolidated statements of operations, has been computed using the
weighted-average number of common shares outstanding, adjusted to include the
pro forma effects of the conversion of the preferred stock to common stock as if
such conversion had occurred on April 1, 1998 for the year ended March 31, 1999
and on April 1, 1999 for the nine-month period ended December 31, 1999, or at
the date of original issuance, if later.
F-13
<PAGE> 92
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
New Accounting Pronouncements
In March 1998, the AICPA issued Statement of Position No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP
98-1). SOP 98-1 requires entities to capitalize certain costs related to
internal-use software once certain criteria have been met. SOP 98-1 is effective
for years beginning after December 15, 1998. The Company adopted SOP 98-1 for
the fiscal year ending March 31, 2000. The adoption of SOP 98-1 did not have a
material impact on the Company's financial position or results of operations.
In April 1998, the AICPA issued Statement of Position No. 98-5, "Reporting
on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires that all
start-up costs related to new operations must be expensed as incurred. In
addition, all start-up costs that were capitalized in the past must be written
off when SOP 98-5 is adopted. The Company implemented SOP 98-5 on January 1,
1999. The adoption of SOP 98-5 did not have a material impact on its financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 establishes accounting methods for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. The Company will be required to
implement FAS 133 for the fiscal year ending March 31, 2002. Because the Company
does not currently hold any derivative instruments and does not engage in
hedging activities, the Company does not expect that the adoption of FAS 133
will have a material impact on its financial position or results of operations.
2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
All cash equivalents and short-term investments as of March 31, 1998, 1999,
and December 31, 1999 are classified as available-for-sale securities and
consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------- DECEMBER 31,
1998 1999 1999
-------- ------- ------------
<S> <C> <C> <C>
Cash equivalents:
Money market fund............................ $ 7,277 $ -- $13,849,255
Commercial paper........................... 198,763 -- --
-------- ------- -----------
Total................................... $206,040 $ -- $13,849,255
======== ======= ===========
Short-term investments:
Commercial paper........................... $297,539 $99,845 $ 99,845
======== ======= ===========
</TABLE>
The Company has an operating lease that requires a security deposit to be
maintained at a financial institution for the term of the lease. The security
deposit in the amount of $99,845 is classified as a restricted long-term
investment and is held in commercial paper. The interest earned on the
investment can be used in operations.
Unrealized holding gains and losses on available-for-sale securities at
March 31, 1998, 1999, and December 31, 1999 and gross realized gains and losses
on sales of available-for-sale securities during
F-14
<PAGE> 93
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
the period from June 6, 1996 (inception) through March 31, 1997, the years ended
March 31, 1998 and 1999, and for the nine-month periods ended December 31, 1998
and 1999 were not significant.
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------- DECEMBER 31,
1998 1999 1999
-------- ---------- ------------
<S> <C> <C> <C>
Furniture and equipment...................... $105,019 $ 191,681 $ 897,824
Computers and software....................... 255,486 1,097,657 3,269,287
Leasehold improvements....................... -- -- 472,361
-------- ---------- ----------
360,505 1,289,338 4,639,472
Less accumulated depreciation and
amortization............................... (67,922) (276,869) (990,099)
-------- ---------- ----------
Total net fixed assets..................... $292,583 $1,012,469 $3,649,373
======== ========== ==========
</TABLE>
4. NOTES RECEIVABLE
In consideration for the issuance of the Company's common stock, various
key employees executed promissory notes in the principal amount of $7,015,750.
The notes bear interest at the rates between 6.02% to 6.20% per annum and are
due and payable four years from the date of the issuance. The notes are full
recourse, and in addition, each of the employees has pledged the common stock,
1,638,000 shares of common stock in aggregate, as collateral to secure the
obligations under the notes.
5. OPERATING LEASE COMMITMENTS
The Company leases office space under operating lease agreements that
expire at various dates through 2004. In October 1999, the Company entered into
a lease agreement for new headquarter facilities in San Jose, California. The
lease terminates in January 2010. Amounts due under the terms of this lease are
included in the lease commitment below and total $21.6 million. The Company
vacated the premises at 2890 Zanker Road in January 2000 and entered into a
sublet agreement. Rental receipts under the sublet agreement are materially
consistent with future payments.
Aggregate future minimum annual payments under these lease agreements,
which have non-cancelable lease terms, as of December 31, 1999, are as follows:
<TABLE>
<S> <C>
2000............................................... $ 1,866,682
2001............................................... 2,294,726
2002............................................... 2,414,294
2003............................................... 2,188,026
2004............................................... 2,189,635
Thereafter......................................... 12,861,051
-----------
Total............................................ $23,814,414
===========
</TABLE>
F-15
<PAGE> 94
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Rent expense was $14,752, $147,710, and $489,649 for the period from June
6, 1996 (inception) through March 31, 1997, and for the years ended March 31,
1998 and 1999 and $321,708 and $726,765 for the nine months ended December 31,
1998 and 1999, respectively.
6. LITIGATION
The Company is a party to various litigation and claims in the ordinary
course of business. Although the results of litigation and claims cannot be
predicted with certainty, the Company believes that the final outcome of such
matters will not have a material adverse effect on the Company's financial
position, results of operations, or cash flows.
7. LINE OF CREDIT
The Company's credit agreement with a bank expired in June 1999.
The Company also has a $100,000 available letter of credit in connection
with the Company's lease agreement. No amounts were committed under this letter
of credit at December 31, 1999.
8. CONVERTIBLE PROMISSORY NOTES
In May 1999, the Company issued convertible promissory notes in the
principal amount of $1,000,000 that earned interest at a rate of prime plus 1%.
During June 1999, the convertible promissory notes and related accrued but
unpaid interest of $7,317 were converted into 228,206 shares of Series E
convertible preferred stock.
9. ACQUISITIONS
Catalogics Acquisition
In July 1996, the Company acquired the assets of Catalogics Software
Corporation (Catalogics), a development stage software company in the business
of internet software development. In exchange for the assets of Catalogics, the
Company paid $150,000 and issued 2,750,000 shares of the Company's common stock.
Of the 2,750,000 shares of the Company's common stock, issued to Dr. Mittal,
1,250,000 shares were subject to a repurchase right by the Company. The
repurchase right lapses over 48 months beginning July 1, 1996. (see Note 10).
Through this acquisition, the Company received an assembled workforce consisting
solely of the founder of Catalogics, and the rights to software in the
development stage. The acquisition was accounted for as a purchase, and the
total purchase price was allocated as described below. The assembled workforce
intangible is being amortized over three years, and the related goodwill is
being amortized over five years, their estimated useful lives.
<TABLE>
<S> <C>
Workforce intangible........................................ $ 30,000
In-process research and development......................... 16,500
Goodwill.................................................... 118,500
--------
$165,000
========
</TABLE>
F-16
<PAGE> 95
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
As of March 31, 1998 and 1999, and December 31, 1999, accumulated
amortization of intangible assets was approximately $58,975, $92,675, and
$112,950 respectively.
Alma Acquisition
In October 1996, the Company acquired the assets of Alma Enterprises, a
development stage software company in the business of software consulting, in
exchange for 200,000 shares of Series A convertible preferred stock and 100,000
shares of the Company's common stock. The transaction was accounted for as a
purchase. The cost of the transaction was allocated to the various fixed assets
acquired in the transaction. The amount of consideration given, $19,223,
approximated the fair value of the fixed assets obtained.
Selectica India Acquisition
In July 1999, the Company converted $150,000 of advances to Selectica
Configurators India Pvt. Ltd. (Selectica India) into 637,500 shares of common
stock of Selectica India, representing 99.9% of total outstanding shares.
Through this acquisition, the Company received various fixed assets and an
assembled workforce and assumed various liabilities. The acquisition was
accounted for as a purchase, and the total purchase price was allocated to net
tangible assets.
10. STOCKHOLDERS' EQUITY
Common Stock
In July 1996, the Company issued 2,500,000 shares of common stock to the
founders of the Company in exchange for $12,500, the then estimated fair value
of common stock. Such shares vest ratably over 48 months. As of March 31, 1998
and 1999, and December 31, 1999, 1,406,250, 781,250, and 312,500 shares are
subject to repurchase at $0.01 per share, respectively.
Common Stock Reserved for Future Issuance
At December 31, 1999, common stock reserved for future issuance was as
follows:
<TABLE>
<S> <C>
Stock option plans:
Outstanding................................................. 2,180,815
Reserved for future grants................................ 2,571,077
Employee Stock Purchase Plan................................ 1,000,000
Warrants to purchase Series D convertible preferred stock... 20,408
Warrants to purchase Series E convertible preferred stock... 253,879
Warrants to purchase common stock........................... 800,000
Conversion of preferred stock............................... 19,710,957
----------
Total common stock reserved for future issuance........... 26,537,136
==========
</TABLE>
F-17
<PAGE> 96
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Convertible Preferred Stock
Convertible preferred stock at March 31, 1997, 1998 and 1999 and December
31, 1999 is as follows:
<TABLE>
<CAPTION>
SHARES
AUTHORIZED MARCH 31,
LIQUIDATION DECEMBER 31, ---------------------------------- DECEMBER 31,
PREFERENCE 1999 1997 1998 1999 1999
----------- ------------ --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Series A................ $0.091667 1,800,000 1,700,000 1,700,000 1,700,000 1,700,000
Series B................ $0.266666 4,000,000 3,750,000 3,750,000 3,750,000 3,750,000
Series C................ $0.922190 3,300,000 -- 3,253,126 3,253,126 3,253,126
Series D................ $ 1.5876 5,000,000 -- -- 4,863,935 4,863,935
Series E................ $ 4.382 6,500,000 -- -- -- 6,143,896
Undesignated............ 4,900,000 -- -- -- --
---------- --------- --------- ---------- ----------
25,500,000 5,450,000 8,703,126 13,567,061 19,710,957
========== ========= ========= ========== ==========
</TABLE>
Series E convertible preferred stockholders are entitled to receive, prior
and in preference to any distribution to other preferred or common stockholders,
$4.382 per share plus any declared but unpaid dividends. Series A, B, C, and D
convertible preferred stock have a liquidation preference of $0.091667,
$0.266666, $0.922190, and $1.5876 per share, respectively, plus declared but
unpaid dividends prior and in preference to distribution to common stockholders.
Any remaining assets of the Company are to be distributed between Series E
convertible preferred stockholders and common stockholders on a pro rata, if
converted, basis until such point as holders of Series E convertible preferred
stock have received total distributions of $8.764. Any amounts in excess of this
amount will be distributed to common stockholders. Each share of Series E
convertible preferred stock shall automatically convert into shares of common
stock upon a liquidation in which holders of Series E convertible preferred
stock would receive aggregate proceeds of more than $10.955 per share, if
converted. Series A, B, C, and D convertible preferred stockholders are entitled
to noncumulative dividends at the rate of $0.0055, $0.0213, $0.0736, $.1176, and
$0.3506 per share, per annum, respectively, or if greater on an as converted
basis, an amount equal to that paid on common stock when and if declared by the
Board of Directors and in preference to common stock dividends. No dividends
have been declared or paid by the Company as of any year presented.
The holders of each share of Series A, B, C, D, and E convertible preferred
stock are entitled to one vote for each share of common stock into which such
convertible preferred share may be converted. The shares are convertible at any
time at the option of the holder and will automatically convert on a one-for-one
basis in the event of an underwritten public offering of the Company's common
stock in which the aggregate proceeds are at least $25,000,000, provided that
such automatic conversion shall only occur with respect to Series E convertible
preferred stock if the per share offering price of such offering is not less
than $6.573, as adjusted. Such conversion can occur for Series A, B, and C
convertible preferred stock upon the consent of the holders of a majority of the
then outstanding shares of convertible preferred stock with Series A, B, and C
voting as a single class. Such conversion can occur for Series D convertible
preferred stock upon the consent of a majority of the then outstanding shares of
Series D convertible preferred stock, and for Series E convertible preferred
stock upon the consent of two-thirds of the then outstanding shares of Series E
convertible preferred stock, The conversion rate of the Series A, B, C, D, and E
convertible preferred
F-18
<PAGE> 97
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
stock is subject to adjustment in the event of, among other things, certain
dilutive issuances of stock, business combinations, stock splits, and stock
dividends.
During October 1999, the Company issued a total of 1,505,702 shares of
Series E convertible preferred stock to various investors, including 261,981
shares to related parties and a member of the board of directors, of which 5,250
shares were a result of exercise of warrants to purchase stock, 79,871 shares to
officers of the Company, and 22,820 shares to unrelated parties. Also included
in the issuance were 1,141,030 shares to an investor whereby the investor and
the Company will work to port the current suite of ACE products to additional
platforms. Gross proceeds from these issuances were $6,597,986. These shares
excluding those related to warrant exercises, were issued at $4.382 per share
while the deemed fair value of our preferred stock at that date approximated
$7.70, 110% of the deemed fair value of common stock on the date of the closing
of Series E convertible preferred stock. The Company recorded approximately $5.0
million of charges related to cheap stock valuation in the third quarter of
fiscal 2000. Of this amount approximately $925,000 was accounted for as a
dividend to stockholders, approximately $190,000 as sales and marketing
compensation expense, and approximately $76,000 as general and administrative
compensation expense in the third quarter. The remaining amount of $3.8 million
will be amortized over a two year period in connection with a development
agreement with one of the investors. Amortization of the development agreement
of $472,000 was recorded in the nine months ended December 31, 1999 and is
consistent with the level of efforts in the areas of marketing and research and
development.
Warrants
In association with a credit agreement entered into with a financial
institution (see Note 7), the Company issued a warrant that entitles the holder
to purchase 20,408 shares of Series D convertible preferred stock at an exercise
price of $1.47 per share. The warrant expires April 17, 2005. The fair value of
the warrant, $25,714, was amortized over the life of the credit agreement. The
Company determined the fair value of the warrants using the Black-Scholes
valuation model assuming a fair value of the Company's Series D convertible
preferred stock of $1.47, a risk-free interest rate of 6.0%, a volatility factor
of 147%, and a life of five years.
In connection with the convertible promissory notes issued in May 1999, the
Company issued warrants to purchase 15,000 shares of Series E convertible
preferred stock at $4.382 per share. This transaction resulted in the valuation
of warrants of $49,781 of which $35,107 was amortized as interest expense prior
to the conversion of the convertible debt into Series E convertible preferred
stock on June 16, 1999. The Company determined the fair value of the warrants
using the Black-Scholes valuation model assuming a fair value of the Company's
Series E convertible preferred stock of $4.382, risk free interest rate of 5.9%,
volatility factor of 96.1%, and a life of five years. The warrants expire in May
2004 or upon the completion of the Company's initial public offering, whichever
occurs first. In October 1999, warrant to purchase 5,250 shares of Series E
convertible preferred stock were exercised.
In connection with the issuance of shares of the Company's Series E
convertible preferred stock, the Company issued warrants to purchase 187,129
shares of the Company's Series E convertible preferred stock at $4.382 per
share. The warrants expire on May 14, 2004 or upon the completion of the
Company's initial public offering, whichever occurs first. The Company
determined the fair value of the warrants using the Black-Scholes valuation
model assuming a fair value of the Company's
F-19
<PAGE> 98
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Series E convertible preferred stock of $4.382, risk free interest rate of
5.78%, volatility factor of 96.1%, and a life of five years.
In September 1999, the Company entered into a porting agreement with an
investor whereby the investor and the Company will work to port the current
suite of ACE products to additional platforms. In connection with the porting
agreement, the Company issued warrants to purchase 57,000 shares of Series E
convertible preferred stock at $4.382 per share. The warrants expire on the
earlier of September 23, 2001 or the closing of the Company's initial public
offering. The Company determined the fair value of the warrants using the
Black-Scholes valuation model assuming a fair value of the Company's Series E
convertible preferred stock of $10.00, risk free interest rate of 5.5%,
volatility factor of 80% and a life of 22 months. The fair value of $381,000
will be amortized over the remaining life of the porting agreement.
In October 1999, the Company entered into a license agreement with a
customer and in connection with the agreement committed to the issuance of a
warrant to purchase 800,000 shares of common stock. In January 2000 the warrant
was issued with an exercise price of the lesser of $13.00 or the initial public
offering price of the Company. The warrants expire in January 2002. The value of
the warrants was estimated to be $3.7 million and was based upon a Black-Scholes
valuation model with the following assumptions: risk free interest rate of 5.5%,
dividend yield of 0%, volatility of 80%, expected life of 2 years, exercise
price and fair value of $10.00. The warrant value will be recorded as license
cost of sales in the fourth quarter of fiscal 2000 when the related license
revenue is recognized.
Stock Option Plan
The Company's 1996 Stock Plan (the Plan) was adopted by the Board of
Directors on August 26, 1996. The Plan provides for granting of incentive stock
options to employees and nonstatutory stock options to outside directors and
consultants. Incentive stock options are granted at an exercise price of not
less than the fair value per share of the common stock on the date of grant as
determined by the Board of Directors. Nonstatutory stock options are granted at
an exercise price of not less than 85% of the fair value per share on the date
of grant as determined by the Board of Directors. Vesting and exercise
provisions are determined by the Board of Directors at the time of grant.
Options generally vest with respect to 25% of the shares one year after the
options' vesting commencement date and the remainder ratably over the following
three years. Options granted under the Plan have a maximum term of ten years.
Options can be exercised at any time and stock issued under the Plan may be, as
determined by the Board of Directors, subject to repurchase by the Company. This
right to repurchase generally lapses over four years from the original date of
issuance or grant.
F-20
<PAGE> 99
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Activity under the stock option plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
------------------------------------------------------------
SHARES NUMBER OF WEIGHTED-AVERAGE
AVAILABLE SHARES EXERCISE PRICE EXERCISE PRICE
----------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
Beginning authorized.............. 1,650,000 -- $-- $ --
Options granted................... (1,217,500) 1,217,500 $0.010 - $0.030 $ 0.02
Options exercised............... -- (562,500) $0.010 - $0.030 $ 0.01
Stock grant for services........ (35,061) -- $0.011 $0.011
----------- ---------- ------
Balance at March 31, 1997......... 397,439 655,000 $0.010 - $0.030 $ 0.02
Increase in shares reserved..... 1,339,500 -- $-- $ --
Options granted................. (970,100) 970,100 $0.030 - $0.100 $ 0.07
Options exercised............... -- (338,000) $0.010 - $0.100 $ 0.02
Options canceled................ 7,500 (7,500) $0.100 $ 0.10
Stock grant for services........ (12,000) -- $0.077 $0.077
----------- ---------- ------
Balance at March 31, 1998......... 762,339 1,279,600 $0.030 - $0.100 $ 0.06
Increase in shares reserved..... 750,000 -- $-- $ --
Options granted................. (1,315,500) 1,315,500 $0.100 - $1.250 $ 0.37
Options exercised............... -- (702,262) $0.030 - $0.500 $ 0.05
Options canceled................ 469,188 (469,188) $0.030 - $0.500 $ 0.10
Shares repurchased.............. 31,250 -- $0.010 $ 0.01
Stock grant for services........ (46,304) -- $0.02 - $0.30 $ 0.26
----------- ---------- ------
Balance at March 31, 1999......... 650,973 1,423,650 $0.030 - $2.500 $ 0.35
Increase in shares reserved..... 2,659,090 -- $-- $ --
Options granted................. (3,068,750) 3,068,750 $1.500 - $10.00 $ 4.38
Options exercised............... -- (2,164,732) $0.030 - $10.00 $ 3.39
Options canceled................ 146,853 (146,853) $0.100 - $8.500 $ 1.18
Shares repurchased.............. 15,981 -- $0.100 - $0.500 $ .22
Stock grant for services........ (33,070) -- $1.50 - $4.38 $ 2.37
----------- ---------- ------
Balance at December 31, 1999...... 371,077 2,180,815 $0.030 - $10.00 $ 2.97
=========== ========== ======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
-------------------------------------- ------------------------
NUMBER OF WEIGHTED- WEIGHTED-
OUTSTANDING AVERAGE WEIGHTED- OPTIONS AVERAGE
SHARES AS OF REMAINING AVERAGE VESTED AT AGGREGATE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, PURCHASE
EXERCISE PRICES 1999 LIFE PRICE 1999 PRICE
--------------- ------------ ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$0.100 - $0.100.................. 168,200 8.05 $0.10 85,361 $ 0.10
$0.200 - $0.500.................. 281,950 8.68 $0.28 55,091 $ 0.31
$1.000 - $1.250.................. 169,918 9.11 $1.09 10,561 $ 1.05
$1.500 - $2.500.................. 937,647 9.54 $1.97 50,327 $ 1.81
$4.380 - $4.380.................. 317,850 9.84 $4.38 15,566 $ 4.38
$8.500 - $10.00.................. 305,250 9.95 $9.71 301 $10.00
--------- -------
$0.100 - $10.00.................. 2,180,815 9.38 $2.97 217,207 $ 0.92
========= =======
</TABLE>
F-21
<PAGE> 100
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
All shares granted under the Plan are exercisable, however, shares
exercised but not vested are subject to repurchase. At December 31, 1999,
2,016,299 shares were subject to repurchase under the Plan.
1999 Employee Stock Purchase Plan
On November 18, 1999, the Company's Board of Directors approved, subject to
shareholder approval, the adoption of the 1999 Employee Stock Purchase Plan (the
Purchase Plan). A total of 1,000,000 shares of common stock has been reserved
for issuance under the Purchase Plan. On each February 15, starting in 2001, the
number of shares will be automatically increased by the lesser of 2% of then
outstanding shares of common stock or 1,000,000 shares. Each offering period
will consist of four consecutive purchase periods of six months duration. The
initial offering period is expected to begin on the effective date of this
offering and ends on February 14, 2002.
The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions, which may not exceed 15% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
the Company's common stock at the beginning of each offering period or at the
end of each purchase period. Employees who work more than five months per year
and more than twenty hours per week are eligible to participate in the Purchase
Plan. Stockholders who own more than 5% of outstanding common stock are excluded
from participating in the Purchase Plan. Each eligible employee is limited to
purchase no more than 750 shares per purchase date (1,500 shares per year) and
no more than $25,000 of stock per calendar year. If not terminated earlier, the
Purchase Plan has a term of twenty years.
1999 Equity Incentive Plan
On November 18, 1999, the Company's Board of Directors approved, subject to
shareholder approval, the 1999 Equity Incentive Plan (the Equity Incentive
Plan). A total of 2,200,000 shares of common stock has been reserved under the
Equity Incentive Plan. On each January 1, starting in 2001, the number of shares
will be automatically increased by the lesser of 5% of then outstanding shares
or 1,800,000. The Equity Incentive Plan includes Incentive Stock Options,
Nonstatutory Stock Options, Stock Appreciation Rights, Shares of Restricted
Stock, and Stock Units. All employees, nonemployee directors, and consultants
are eligible to participate in the Equity Incentive Plan. Each eligible
participant is limited to being granted 330,000 shares per year, except in the
first year of employment where the limit is 660,000 shares. The Equity Incentive
Plan has a term of 10 years.
Deferred Compensation
During the years ended March 31, 1998 and 1999, and the nine-month period
ended December 31, 1999, the Company recorded aggregate deferred compensation of
$6,644,160 representing the difference between the exercise price of stock
options granted and the then deemed fair value of the Company's common stock.
The amortization of deferred compensation is charged to operations over the
vesting period of the options using the straight-line method, which is typically
four years. For the period from June 6, 1996 (inception) through March 31, 1997,
for the years ended March 31, 1998 and 1999, and for the nine-month periods
ended December 31, 1998 and 1999, the Company amortized $6,256, $3,541, $47,500,
$22,591, and $589,590, respectively.
F-22
<PAGE> 101
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
Accelerated Options
In March 1999, in association with an employee termination agreement, the
Company accelerated 137,000 shares of unvested common stock and recorded
$170,000 of related compensation expense.
Accounting for Stock-Based Compensation
Pro forma information regarding net loss is required by FAS 123 and has
been determined as if the Company has accounted for its employee stock options
granted under the fair value method of FAS 123. The fair value of options
granted was estimated at the date of grant using the minimum-value method and
the following weighted-average assumptions: a risk-free interest rate for the
period from June 6, 1996 (inception) through March 31, 1997, for the years ended
March 31, 1998 and 1999, and for the nine-month periods ended December 31, 1998
and 1999 of 6.67%, 5.94%, 5.05%, 4.87%, and 5.96%, respectively; no dividend
yield or volatility factor; and an expected life of seven years. The
weighted-average fair value of options granted in the period from June 6, 1996
(inception) through March 31, 1997, for the years ended March 31, 1998 and 1999,
and for the nine-month periods ended December 31, 1998 and 1999 was $0.01,
$0.02, $0.11, $0.07 and $1.48, respectively.
The option valuation model was developed for use in estimating the fair
value of nonpublicly traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected life and risk-free
interest rate. Because the Company's options have characteristics significantly
different from those of traded options and because the changes in the subjective
input assumptions can materially affect the fair value estimate, the existing
model do not necessarily provide a reliable single measure of the fair value of
its options.
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant date for awards under those
plans consistent with the method of FAS 123, the Company's net loss and net loss
per share would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6,
1996
(INCEPTION) NINE MONTHS ENDED
THROUGH YEARS ENDED MARCH 31, DECEMBER 31,
MARCH 31, ------------------------- --------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss applicable to common
stockholders:
As reported..................... $(250,883) $(3,101,449) $(7,536,901) $(4,720,958) $(13,041,917)
Pro forma..................... $(252,666) $(3,111,548) $(7,551,879) $(4,729,568) $(13,343,274)
Basic and diluted, pro forma net
loss per share applicable to
common stockholders........... $ (0.15) $ (0.91) $ (1.58) $ (1.06) $ (2.53)
</TABLE>
F-23
<PAGE> 102
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
11. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31,
1999
------------
<S> <C>
Current provision:
State.................................................... $20,000
Foreign.................................................. 30,000
-------
$50,000
=======
</TABLE>
The difference between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate (35%) to income
before taxes is explained below:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6,
1996 NINE MONTHS
(INCEPTION) ENDED
THROUGH YEARS ENDED MARCH 31, DECEMBER 31,
MARCH 31, ------------------------- -------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Tax (benefit) at federal
statutory rate.............. $(88,000) $(1,085,000) $(2,637,000) $(1,652,000) $(4,223,000)
Loss for which no tax
benefit is currently
recognizable.............. 88,000 1,085,000 2,637,000 1,652,000 4,223,000
State taxes................. -- -- -- -- 20,000
Foreign taxes............... -- -- -- -- 30,000
-------- ----------- ----------- ----------- -----------
Total provision........ $ -- $ -- $ -- $ -- $ 50,000
======== =========== =========== =========== ===========
</TABLE>
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------------- DECEMBER 31,
1998 1999 1999
----------- ----------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........... $ 1,188,000 $ 3,967,000 $ 7,623,000
Tax credit carryforwards................. 103,000 296,000 486,000
Deferred revenue......................... 153,000 314,000 664,000
Accruals and reserves not currently
deductible............................ -- 136,000 500,000
Other.................................... -- -- 264,000
----------- ----------- -----------
Total deferred tax assets.................. 1,444,000 4,713,000 9,537,000
Valuation allowance........................ (1,444,000) (4,713,000) (9,537,000)
----------- ----------- -----------
Net deferred tax assets............... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The Company has recorded a tax provision of $50,000 for the nine months
ended December 31, 1999. The provision for income taxes consists primarily of
state income taxes and foreign taxes. There
F-24
<PAGE> 103
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
is no provision for income taxes for the period from June 6, 1996 (inception)
through March 31, 1997, for the years ended March 31, 1998 and 1999, and for the
nine-month period ended December 31, 1998.
Financial Accounting Standards Board Statement No. 109 provides for the
recognition of deferred tax assets if realization of such assets is more likely
than not. Based on the weight of available evidence, which includes the
Company's historical operating performance and the reported cumulative net
losses in all prior years, the Company has provided a full valuation allowance
against its net deferred tax assets.
The valuation allowance increased by $3,269,000 and $4,824,000 during the
year ended March 31, 1999 and the nine-month period ended December 31, 1999,
respectively.
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $19,400,000 and $14,600,000, respectively.
As of December 31, 1999, the Company also had federal and state research and
development tax credit carryforwards of approximately $300,000 and $200,000,
respectively.
The net operating loss and tax credit carryforwards will expire at various
dates beginning in 2005 through 2020, if not utilized.
Utilization of the net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
The annual limitation may result in the expiration of the net operating loss and
credit carryforwards before utilization.
12. RELATED PARTY
During the years ended March 31, 1998 and 1999 and the nine-month period
ended December 31, 1999, certain services were performed by Selectica
Configurators India Pvt. Ltd. (Selectica India), a related party. These efforts
included quality and assurance testing and consulting services. Prior to June
30, 1999, Selectica India was owned by the parents of the chief executive
officer and founder of the Company. Total expenses related to these efforts,
which are included in the Company's statements of operations, by Selectica
India, amounted to $51,200, $302,511, and $135,000 for the years ended March 31,
1998 and 1999 and for the nine-month period ended December 31, 1999,
respectively. The Company also advanced $155,000 to Selectica India during 1999
for future services efforts. No expenses were incurred related to Selectica
India during fiscal 1997. Amounts included in accounts payable were immaterial
for all periods presented. During July 1999, the Company acquired a majority
ownership of Selectica, India. See Note 9 for further details.
In December 1999, the Company acquired approximately 2% of the equity in
LoanMarket Resources, LLC in exchange for a license and consulting service
agreement. As there is no readily determinable fair value for the equity
position in LoanMarket Resources, LLC, the entire investment has been reserved.
Revenue recognized on the agreement was approximately $434,000 for the nine
months ended December 31, 1999 and represented the percentage-of-completion to
date. Amounts recognized under the contract were less than total cash received
to date. Remaining cash receipts of approximately $366,000 are included in
deferred revenues as of December 31, 1999.
F-25
<PAGE> 104
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
13. BENEFIT PLAN
Effective February 1998, the Company adopted a tax-deferred savings plan,
the Selectica 401(k) Plan (the 401(k) Plan), for the benefit of qualified
employees. The 401(k) Plan is designed to provide employees with an accumulation
of funds at retirement. Qualified employees may elect to make contributions to
the 401(k) Plan on a monthly basis. The 401(k) Plan does not require the Company
to make any contributions. No contributions were made by the Company for the
years ended March 31, 1998 and 1999 and the nine-month periods ended December
31, 1998 and 1999. Administrative expenses relating to the 401(k) Plan are
insignificant.
14. SUBSEQUENT EVENTS
Reincorporation
In October 1999, the Board of Directors approved the Company's
reincorporation in the state of Delaware, and the designation of common stock
and preferred stock with $0.0001 par value per share. In addition, the Company's
Certificate of Incorporation will be amended to authorize 75,000,000 shares of
common stock, and 25,000,000 shares of undesignated preferred stock upon
reincorporation. The reincorporation was approved by the state of Delaware on
January 19, 2000.
The Board of Directors has the authority, without action by the
stockholders, to designate and issue the preferred stock in one or more series
and to fix the rights, preferences, privileges and related restrictions,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of the series. The
accompanying consolidated financial statements have been retroactively restated
to give effect to the reincorporation.
Initial Public Offering
In October 1999, the Board of Directors approved the filing of a
Registration Statement with the Securities and Exchange Commission permitting
the Company to sell common stock to the public. Upon completion of the initial
public offering the Company's Certificate of Incorporation will be amended to
authorize 150,000,000 shares of common stock and 10,000,000 shares of preferred
stock.
1996 Stock Plan
In January 2000, the Board of Directors approved the increase of 1,000,000
shares of common stock under the 1996 Stock Plan. The increase in shares is
subject to stockholder approval.
F-26
<PAGE> 105
Inside Back Cover
[DESCRIPTION OF ARTWORK
At the top of the page is the name "Selectica" with the company's logo to
the left of it. The following caption is beneath the name of the company and
its logo: "The Internet Selling System Company."
In the upper middle portion of the page is the following text: "Selectica
Delivers Internet Selling Systems and Services to these Global Companies."
Beneath the text is a broad, shaded arrow pointing downward.
Beneath the arrow are our customers' logos.
Beneath the logos, at the bottom of the page is the following text:
"Selectica is enabling companies in a wide range of industries to adopt
electronic business strategies for selling their complex products and
services."]
<PAGE> 106
[Selectica Logo]
<PAGE> 107
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table presents the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 12,144
NASD fee.................................................... 8,000
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 235,000
Legal fees and expenses..................................... 600,000
Accounting fees and expenses................................ 400,000
Blue sky fees and expenses.................................. 15,000
Custodian and transfer agent fees........................... 10,000
Miscellaneous fees and expenses............................. 124,856
----------
Total............................................. $1,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit indemnification
under limited circumstances for liabilities, including reimbursement for
expenses incurred, arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VI, Section 6.1 of our bylaws provides for mandatory
indemnification of our directors, officers and employees to the maximum extent
permitted by the Delaware General Corporation Law. Our Certificate of
Incorporation provides that, under Delaware law, our officers and directors
shall not be liable for monetary damages for breach of the officers' or
directors' fiduciary duty as officers or directors to our stockholders and us.
This provision in the Certificate of Incorporation does not eliminate the
officers' or directors' fiduciary duty, and in appropriate circumstances,
equitable remedies like injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each officer or director will
continue to be subject to liability for breach of the officer's or director's
duty of loyalty to us for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the officer or director and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect an officer's or
director's responsibilities under any other law, such as the federal securities
laws or state or federal environmental laws. We have entered into
indemnification agreements with our officers and directors, a form of which is
attached as Exhibit 10.1 and incorporated by reference. The indemnification
agreements provide our officers and directors with further indemnification to
the maximum extent permitted by the Delaware General Corporation Law. Reference
is made to Section 7 of the underwriting agreement contained in Exhibit 1.1 to
this prospectus, indemnifying officers and directors of ours against limited
liabilities.
II-1
<PAGE> 108
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 1996, we have issued and sold the following securities:
1. We granted direct issuances or stock options to purchase 6,698,285
shares of our common stock at exercise prices ranging from $0.01 to $10.00
per share to employees, consultants, directors and other service providers
under our 1996 Stock Plan.
2. We issued and sold an aggregate of 3,893,929 shares of our common
stock to employees, consultants, and other service providers for aggregate
consideration of approximately $7,529,809 under direct issuances or
exercises of options granted under our 1996 Stock Plan.
3. In July 1996, we issued and sold 1,500,000 shares of our Series A
Preferred Stock for an aggregate purchase price of approximately $137,501
and 1,250,000 shares of our common stock for an aggregate purchase price of
$12,500 to Rajen Jaswa under a stock purchase agreement.
4. In July 1996, we issued an aggregate of 2,750,000 shares of our
common stock to Dr. Sanjay Mittal in exchange for 3,250,000 shares of
Catalogics. Of the 2,750,000 shares of our common stock Dr. Mittal received
1,250,000 shares were subject to a repurchase right by us. The repurchase
right lapses over 48 months beginning July 1, 1996. The fair value of the
1,250,000 shares of common stock subject to repurchase was $12,500.
5. In October 1996, we issued 200,000 shares of our Series A
Preferred Stock and 89,000 shares of our common stock to Vasudev Bhandarkar
and an additional 11,000 shares of our common stock to a group of employees
of Alma Enterprises in exchange for the fixed assets of Alma Enterprises.
6. In October 1996, we issued and sold 473,000 shares of common stock
for an aggregate purchase price of $4,730 to Vasudev Bhandarkar under a
stock purchase agreement.
7. In January 1997, we issued and sold 3,750,000 shares of our Series
B Preferred Stock for an aggregate purchase price of approximately
$1,001,330 to a group of investors under a stock purchase agreement.
8. From July 24, 1997 through October 1, 1997, we issued and sold
3,253,126 shares of our Series C Preferred Stock for an aggregate purchase
price of approximately $2,999,382 to a group of investors under a stock
purchase agreement.
9. On April 17, 1998 we issued a warrant to purchase 32,609 shares of
our Series C Preferred Stock with an exercise price of $0.92 per share to
Imperial Bank. The warrant was subsequently amended on July 1, 1998 to be
exercisable for 20,408 shares of our Series D Preferred Stock with an
exercise price of $1.47 per share.
10. From June 17, 1998 through July 27, 1998 we issued and sold
4,863,935 shares of our Series D Preferred Stock for an aggregate purchase
price of approximately $7,149,984 to a group of investors under a stock
purchase agreement.
11. On February 11, 1999, we issued a warrant to purchase 187,129
shares of our Series E Preferred Stock with an exercise price of up to
$4.38 per share to Deutsche Bank Securities. Upon consummation of the
initial public offering, we will terminate the warrant unless it is
previously exercised in accordance with its terms.
12. On May 14, 1999, we issued and sold warrants to purchase 15,000
shares of our Series E Preferred Stock with an exercise price of $4.38 per
share to a group of investors under
II-2
<PAGE> 109
a note and warrant purchase agreement for an aggregate purchase price of
$375.00. On November 15, 1999, two holders exercised their respective
warrants to purchase an aggregate of 5,250 shares of Series E Preferred
Stock. Upon consummation of the initial public offering, we will terminate
the remaining warrants unless they are previously exercised in accordance
with their terms.
13. From June 16, 1999 through October 12, 1999 we issued and sold
6,138,646 shares of our Series E Preferred Stock for an aggregate purchase
price of approximately $26,879,546 to a group of investors under a stock
purchase agreement.
14. On December 10, 1999 we issued warrants to purchase 57,000 shares
of our Series E Preferred Stock with an exercise price of $4.38 per share
to Intel Corporation. Upon consummation of the initial public offering, the
warrant will terminate unless it is previously exercised in accordance with
its terms.
15. On January 7, 2000 we issued and sold a warrant to purchase
800,000 shares of our common stock with an exercise price of the lesser of
$13.00 per share or the initial public offering price to Cisco Systems,
Inc. for an aggregate purchase price of approximately $800,000.
16. On January 19, 2000, Selectica, Inc., a California corporation
(Selectica California), was merged with and into its wholly-owned
subsidiary, Selectica, Inc., a Delaware corporation (Selectica Delaware),
for purposes of reincorporating into the State of Delaware. In connection
with the reincorporation, Selectica Delaware issued shares of its common
stock and preferred stock to the holders of common stock and preferred
stock of Selectica California, such that each holder of common stock or
preferred stock of Selectica California received a proportionate interest
in the common stock or preferred stock of Selectica Delaware. The issuance
of shares in the reincorporation was pursuant to an exemption from the
registration requirements of the Securities Act provided by Rule 145
promulgated thereunder.
17. On January 31, 2000 we entered into an agreement with Samsung SDS
Co., Ltd., to issue and sell 1,000,000 shares of our common stock to
Samsung at a per share price equal to 96% of the initial public offering
price.
Except as otherwise stated, the sale of the above securities was deemed to
be exempt from registration under the Securities Act in reliance upon Section
4(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act as transactions by an
issuer not involving any public offering or transactions under compensation
benefit plans and contracts relating to compensation as provided under Rule 701.
The recipients of securities in each transaction represented their intentions to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution and appropriate legends were affixed to the
share certificates issued in these transactions. All recipients had adequate
access, through their relationships with us, to information about us.
II-3
<PAGE> 110
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Form of Second Amended and Restated Certificate of
Incorporation to be filed immediately following the closing
of the offering made under this Registration Statement.
3.3 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2* Form of Registrant's Common Stock certificate.
4.3** Amended and Restated Investor Rights Agreement dated June
16, 1999.
4.4** Warrant to Purchase Stock between the Registrant and
Imperial Bank, dated April 17, 1998; First Amendment to
Warrant between the Registrant and Imperial Bank, dated July
1, 1998.
4.5 Warrant to Purchase Stock between the Registrant and Cisco
Systems, Inc., dated January 14, 2000.
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1 Form of Indemnification Agreement.
10.2** 1996 Stock Plan.
10.3** 1999 Employee Stock Purchase Plan.
10.4** 1999 Equity Incentive Plan.
10.5** Lease between Spieker Properties L.P. and the Registrant,
dated December 8, 1997.
10.6** Lease between John Arrillaga Survivors Trust and the Richard
T. Perry Separate Property Trust as Landlord and the
Registrant as Tenant, dated October 1, 1999.
10.7**+ Major Account License Agreement between the Registrant and
Fujitsu Network Communications, dated November 4, 1998.
10.8**+ Agreement for Web Site Design and Development Service
between the Registrant and BMW of North America, dated July
15, 1998.
10.9**+ Major Account License Agreement between the Registrant and
the Fireman's Fund Insurance Company, dated June 24, 1999.
10.10**+ Major Account License Agreement between the Registrant and
LoanMarket Resources, dated June 30, 1999.
10.11**+ Major Account License Agreement between the Registrant and
Aspect Telecommunications, dated May 17, 1999.
10.12**+ A Consulting Engagement Proposal from the Registrant to
3Com, dated July 29, 1999.
10.13**+ A Consulting Engagement Proposal from the Registrant to
3Com, dated August 10, 1999.
10.14** Employment Agreement between the Registrant and Rajen Jaswa,
dated as of July 1, 1997.
10.15** Employment Agreement between the Registrant and Dr. Sanjay
Mittal, dated as of July 1, 1997.
10.16** Offer letter from the Registrant to Stephen Bennion dated as
of September 16, 1999.
10.17** Offer letter from the Registrant to Daniel A. Carmel dated
as of July 23, 1999.
10.18+ Major Account License Agreement between the Registrant and
Samsung SDS Co., Ltd., dated January 12, 2000.
10.19+ International Value Added Reseller Agreement between the
Registrant and Samsung SDS Co., Ltd., dated January 12,
2000.
10.20 Stock Purchase Agreement between the Registrant and Samsung
SDS Co., Ltd., dated January 31, 2000.
</TABLE>
II-4
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.21 Lease between John Arrillaga Survivors Trust and Richard T.
Perry Separate Property Trust as Landlord and the Registrant
as Tenant, dated October 1, 1999.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney. Reference is made to page II-5.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Portions of these exhibits have been omitted pursuant to a request for
confidential treatment.
ITEM 17. UNDERTAKINGS
We undertake to provide to the underwriters at the closing specified in the
underwriting agreement, certificates in the denominations and registered in the
names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant under the Delaware General Corporation Law, the Certificate of
Incorporation or our bylaws, the underwriting agreement, or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission this
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against these liabilities, other than the payment by us of expenses incurred or
paid by a director, officer, or controlling person of ours in the successful
defense of any action, suit or proceeding, is asserted by a director, officer or
controlling person in connection with the securities being registered in this
offering, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether this indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of this issue.
We undertake that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by us under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered, and the offering of these securities at that time shall be deemed
to be the initial bona fide offering.
(b) The following financial schedule is filed with this registration
statement:
Schedule II -- Valuation and Qualifying Accounts
II-5
<PAGE> 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Jose, State of California, on this 1st day of February, 2000.
SELECTICA, INC.
By: /s/ RAJEN JASWA
--------------------------------------
Rajen Jaswa
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Chief Executive Officer and
- --------------------------------------------- President (Principal Executive
Rajen Jaswa Officer) and Chairman of the Board
* Chief Technology Officer, Vice
- --------------------------------------------- President, Engineering and Vice
Sanjay Mittal Chairman of the Board
* Chief Financial Officer (Principal
- --------------------------------------------- Financial and Accounting Officer)
Stephen Bennion
* Director
- ---------------------------------------------
Betsy S. Atkins
* Director
- ---------------------------------------------
Robin Richards Donohoe
* Director
- ---------------------------------------------
Michael Lyons
* Director
- ---------------------------------------------
Thomas Neustaetter
* Director
- ---------------------------------------------
John Fisher
*By: /s/ RAJEN JASWA February 1, 2000
- ---------------------------------------------
Rajen Jaswa
Attorney-in-Fact
*By: /s/ STEPHEN BENNION February 1, 2000
- ---------------------------------------------
Stephen Bennion
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 113
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNT
SELECTICA, INC.
DECEMBER 31, 1999
<TABLE>
<CAPTION>
BALANCE ADDITIONS
AS OF CHARGED TO BALANCE AS
BEGINNING COSTS AND OF END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended March 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts........... $ -- $ -- $ -- $ --
Year ended March 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts........... $ -- $ 29,750 $ -- $ 29,750
Year ended March 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts........... $ 29,750 $ 74,250 $ -- $104,000
Nine months ended December 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts........... $104,000 $150,000 $ -- $254,000
</TABLE>
<PAGE> 114
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Form of Second Amended and Restated Certificate of
Incorporation to be filed immediately following the closing
of the offering made under this Registration Statement.
3.3 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2* Form of Registrant's Common Stock certificate.
4.3** Amended and Restated Investor Rights Agreement dated June
16, 1999.
4.4** Warrant to Purchase Stock between the Registrant and
Imperial Bank, dated April 17, 1998; First Amendment to
Warrant between the Registrant and Imperial Bank, dated July
1, 1998.
4.5 Warrant to Purchase Stock between the Registrant and Cisco
Systems, Inc., dated January 14, 2000.
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1 Form of Indemnification Agreement.
10.2** 1996 Stock Plan.
10.3** 1999 Employee Stock Purchase Plan.
10.4** 1999 Equity Incentive Plan.
10.5** Lease between Spieker Properties L.P. and the Registrant,
dated December 8, 1997.
10.6** Lease between John Arrillaga Survivors Trust and the Richard
T. Perry Separate Property Trust as Landlord and the
Registrant as Tenant, dated October 1, 1999.
10.7**+ Major Account License Agreement between the Registrant and
Fujitsu Network Communications, Inc., dated November 4,
1998.
10.8**+ Agreement for Web Site Design and Development Service
between the Registrant and BMW of North America, Inc., dated
July 15, 1998.
10.9**+ Major Account License Agreement between the Registrant and
the Fireman's Fund Insurance Company, dated June 24, 1999.
10.10**+ Major Account License Agreement between the Registrant and
LoanMarket Resources, LLC., dated June 30, 1999.
10.11**+ Major Account License Agreement between the Registrant and
Aspect Telecommunications, dated May 17, 1999.
10.12**+ A Consulting Engagement Proposal from the Registrant to
3Com, dated July 29, 1999.
10.13**+ A Consulting Engagement Proposal from the Registrant to
3Com, dated August 10, 1999.
10.14** Employment Agreement between the Registrant and Rajen Jaswa,
dated as of July 1, 1997.
10.15** Employment Agreement between the Registrant and Dr. Sanjay
Mittal, dated as of July 1, 1997.
10.16** Offer letter from the Registrant to Stephen Bennion dated as
of September 16, 1999.
10.17** Offer letter from the Registrant to Daniel A. Carmel dated
as of July 23, 1999.
10.18+ Major Account License Agreement between the Registrant and
Samsung SDS Co., Ltd., dated January 12, 2000.
10.19+ International Value Added Reseller Agreement between the
Registrant and Samsung SDS Co., Ltd., dated January 12,
2000.
10.20 Stock Purchase Agreement between the Registrant and Samsung
SDS Co., Ltd., dated January 31, 2000.
10.21 Lease between John Arrillaga Survivors Trust and Richard T.
Perry Separate Property Trust as Landlord and the Registrant
as Tenant, dated October 1, 1999.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney. Reference is made to page II-5.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Portions of these exhibits have been omitted pursuant to a request for
confidential treatment.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SELECTICA, INC.,
A DELAWARE CORPORATION
(PURSUANT TO SECTIONS 242 AND 245 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
Selectica, Inc., a corporation organized and existing under
and by virtue of the provisions of the General Corporation Law of the State of
Delaware (the "General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is Selectica, Inc.
and that this corporation was originally incorporated pursuant to the General
Corporation Law on November 15, 1999 under the name Selectica, Inc.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Certificate of Incorporation of this
corporation, declaring said amendment and restatement to be advisable and in the
best interests of this corporation and its stockholders, and authorizing the
appropriate officers of this corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment and
restatement is as follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is Selectica, Inc.
ARTICLE II
The address of the Corporation's registered office in the
State of Delaware is 15 East North Street in the City of Dover, County of Kent.
The name of the corporation's registered agent at such address is Incorporating
Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
<PAGE> 2
ARTICLE IV
(A) Classes of Stock. This corporation is authorized to issue two
classes of stock, to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares that this corporation is authorized to issue
is one hundred million (100,000,000) shares. Forty million (75,000,000) shares
shall be Common Stock and twenty-five million (25,000,000) shares shall be
Preferred Stock, each with a par value of $0.0001 per share.
(B) Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock authorized by these Amended and Restated Certificate of
Incorporation may be issued from time to time in one or more series. The rights,
preferences, privileges and restrictions granted to and imposed on the Series A
Preferred Stock, which series shall consist of one million eight hundred
thousand (1,800,000) shares (the "Series A Preferred Stock"), the Series B
Preferred Stock, which series shall consist of four million (4,000,000) shares
(the "Series B Preferred Stock), Series C Preferred Stock, which series shall
consist of three million three hundred thousand (3,300,000) shares (the "Series
C Preferred Stock"), Series D Preferred Stock, which series shall consist of
five million (5,000,000) shares (the "Series D Preferred Stock") and Series E
Preferred Stock, which series shall consist of six million five hundred thousand
(6,500,000) shares (the "Series E Preferred Stock") are as set forth below in
this Article III(B). The Board of Directors is hereby authorized to fix or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
additional series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or of any of them. Subject to
compliance with applicable protective voting rights that have been or may be
granted to the Preferred Stock or series thereof in Certificates of
Determination or this corporation's Certificate of Incorporation ("Protective
Provisions"), the rights, privileges, preferences and restrictions of any such
additional series may be subordinated to, pari passu with (including, without
limitation, inclusion in provisions with respect to liquidation and acquisition
preferences, redemption and/or approval of matters by vote or written consent),
or senior to any of those of any present or future class or series of Preferred
or Common Stock. Subject to compliance with applicable Protective Provisions,
the Board of Directors is also authorized to increase or decrease the number of
shares of any series, prior or subsequent to the issue of that series, but not
below the number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
1. Dividend Provisions.
(a) Subject to the rights of series of Preferred
Stock that may from time to time come into existence, the holders of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock shall be entitled to
receive dividends, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of this corporation) on the Common Stock of this corporation, at the rate
of $.0055 per share per annum in the case of Series A Preferred Stock,
2
<PAGE> 3
$.0213 per share per annum in the case of Series B Preferred Stock, $.0736 per
share per annum in the case of Series C Preferred Stock, $.1176 per share per
annum in the case of Series D Preferred Stock and $.3506 per share per annum in
the case of Series E Preferred Stock or, if greater (as determined on a per
annum basis and an as converted basis for the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock, respectively), an amount equal to that paid on any other
outstanding shares of this corporation, payable quarterly, when, as and if
declared by the Board of Directors. Such dividends shall not be cumulative.
Subject to the rights of series of Preferred Stock that may from time to time
come into existence, no dividends may be declared on any one series of Preferred
Stock without declaring a dividend on all other series of Preferred Stock.
(b) After payment of any such dividends, any
additional dividends or distributions shall be distributed among all holders of
Common Stock and all holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock in proportion to the number of shares of Common Stock which would be held
by each such holder if all shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock were converted to Common Stock pursuant to the terms of Article
III, Section 4 hereto.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution
or winding up of this corporation, either voluntary or involuntary, subject to
the rights of series of Preferred Stock that may from time to time come into
existence, the holders of Series E Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets of this
corporation to the holders of Series A, Series B, Series C or Series D Preferred
Stock or Common Stock by reason of their ownership thereof, an amount per share
equal to the sum of $4.382 per share for each outstanding share of Series E
Preferred Stock (the "Original Series E Issue Price") (as adjusted for any stock
splits, combinations, stock dividends, recapitalization or the like) and (ii) an
amount equal to declared but unpaid dividends on such share. If upon the
occurrence of such event, the assets and funds of the Company shall be
insufficient to permit the full payment to the holders of Series E Preferred
Stock, then the entire assets and funds of this corporation legally available
for distribution shall be distributed ratably among the holders of the Series E
Preferred Stock.
(b) Upon the completion of the distribution
required by subparagraph (a) of this Section 2 and any other distribution that
may be required with respect to any series of Preferred Stock that may from time
to time come into existence, the holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets of this corporation to the holders of Common Stock by reason of their
ownership thereof, an amount per share equal to the sum of (i) $.091667 for each
outstanding share of Series A Preferred Stock (the "Original Series A Issue
Price") (as adjusted for any stock splits, combinations, stock dividends,
recapitalization or the like), $0.266666 for each outstanding share of Series B
Preferred Stock (the "Original Series B Issue Price") (as adjusted for any stock
splits,
3
<PAGE> 4
combinations, stock dividends, recapitalization or the like), $0.922190 for each
outstanding share of Series C Preferred Stock (the "Original Series C Issue
Price") (as adjusted for any stock splits, combinations, stock dividends,
recapitalization or the like) and $1.47 (the "Original Series D Issue Price")
plus $.1176 per share per annum (pro rated for a partial year) for each
outstanding share of Series D Preferred Stock, as the case may be and (ii) an
amount equal to declared but unpaid dividends on such share. If, upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then,
subject to the rights of the Series E Preferred Stock and any series of
Preferred Stock that may from time to time come into existence, the entire
assets and funds of this corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock so that
each holder receives the same percentage of the applicable preferential amount.
(c) Upon the completion of the distribution
required by subparagraphs (a) and (b) of this Section 2 and any other
distribution that may be required with respect to any series of Preferred Stock
that may from time to time come into existence, the remaining assets of this
corporation available for distribution to stockholders shall be distributed
among the holders of Common Stock and Series E Preferred Stock, pro rata based
on the number of shares of Common Stock held by each (assuming full conversion
of all such Series E Preferred Stock) until, with respect to the holders of
Series E Preferred Stock, such holders have received an aggregate of $8.764 per
share which amount shall include amounts paid pursuant to subparagraph (a) of
this Section 2 (as adjusted for any stock splits, combinations, stock dividends,
recapitalization or the like); thereafter if assets remain in its corporation,
the holders of the Common Stock shall receive all of the remaining assets of
this corporation pro rata based on the number of shares of Common Stock held by
each.
(d) (i) For purposes of this Section 2, a
liquidation, dissolution or winding up of this corporation shall be deemed to be
occasioned by, or to include, (i) the acquisition of this corporation by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation, but excluding
any merger effected exclusively for the purpose of changing the domicile of this
corporation); or (ii) a sale of all or substantially all of the assets of this
corporation; unless this corporation's stockholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for this
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving or acquiring entity.
(ii) In any of such events, if the
consideration received by this corporation is other than cash, its value will be
deemed its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to
investment letter or other similar restrictions on free marketability covered by
(B) below:
1. If traded on a securities
exchange or through the Nasdaq National Market, the value shall be deemed to be
the average of the closing prices of
4
<PAGE> 5
the securities on such exchange over the thirty (30) day period ending three (3)
days prior to the closing of the applicable transaction;
2. If actively traded
over-the-counter, the value shall be deemed to be the average of the closing bid
or sale prices (whichever is applicable) over the thirty (30) day period ending
three (3) days prior to the closing of the applicable transaction; and
3. If there is no active
public market, the value shall be the fair market value thereof, as determined
in good faith by the Board of Directors of this corporation.
(B) The method of valuation of
securities subject to investment letter or other restrictions on free
marketability (other than restrictions arising solely by virtue of a
stockholder's status as an affiliate or former affiliate) shall be to make an
appropriate discount from the market value determined as above in (A)(1), (2)
or (3) to reflect the approximate fair market value thereof, as determined in
good faith by the Board of Directors of this corporation.
3. Redemption. The Preferred Stock is not redeemable.
4. Conversion. The holders of the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and the Series E Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
(a) Right to Convert. Subject to the
provisions of Section 4 hereof, each share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of this
corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the
Original Series A Issue Price, the Original Series B Issue Price, the Original
Series C Issue Price, the Original Series D Issue Price and the Original Series
E Issue Price, as the case may be, by the Conversion Price applicable to such
share, determined as hereafter provided, in effect on the date the certificate
is surrendered for conversion. The initial Conversion Price per share for the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock and the Series E Preferred Stock shall be
the Original Series A Issue Price, the Original Series B Issue Price, the
Original Series C Issue Price, the Original Series D Issue Price and the
Original Series E Issue Price, respectively; provided however, that the
Conversion Price for the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and the Series E Preferred
Stock shall be subject to adjustment as set forth in subsection 4(d).
(b) Automatic Conversion.
(i) Each share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and the Series E Preferred Stock shall automatically be converted into
shares of Common Stock at the Conversion Price at the time in effect for such
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
5
<PAGE> 6
Series D Preferred Stock or Series E Preferred Stock, as the case may be,
immediately upon this corporation's sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement
under the Securities Act of 1933, as amended (the "Act"), the aggregate proceeds
to this corporation of which are not less than $25,000,000; provided further,
that such automatic conversion shall only occur with respect to each share of
Series E Preferred Stock if the per share offering price of such offering is not
less than $6.573 per share (as adjusted for any stock splits, combinations,
stock dividends, recapitalization or the like) (a "Qualified IPO").
(ii) Each share of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall automatically be
converted into shares of Common Stock at the Conversion Price at the time in
effect for such Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, as the case may be, immediately upon the date specified by the
consent or agreement of the holders of a majority of the then outstanding shares
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock (voting on an as converted basis and as a single class).
(iii) Each share of Series D Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for such Series D Preferred Stock, as the case may
be, immediately upon the date specified by the consent or agreement of the
holders of a majority of the then outstanding shares of Series D Preferred Stock
(voting on an as converted basis and as a single class).
(iv) Each share of Series E Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for such Series E Preferred Stock, as the case may
be, (i) immediately upon the date specified by the consent or agreement of the
holders of not less than two-thirds of the then outstanding shares of Series E
Preferred Stock (voting on an as converted basis and as a single class) or (ii)
the occurrence of an event described in subparagraph 2(d)(i) in which the
holders of the Series E Preferred Stock would receive aggregate proceeds, valued
in accordance with subparagraph 2(d)(ii), of more than $10.955 per share (as
adjusted for any stock splits, combinations, stock dividends, recapitalization
or the like).
(c) Mechanics of Conversion. Before any holder of
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he or she shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this corporation or of any transfer agent for the
Preferred Stock, and shall give written notice to this corporation at its
principal corporate office of the election to convert the same, and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. This corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offering
of securities registered pursuant
6
<PAGE> 7
to the Act, the conversion may, at the option of any holder tendering Preferred
Stock for conversion, be conditioned upon the closing with the underwriters of
the sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Preferred Stock
shall not be deemed to have converted such Preferred Stock, respectively, until
immediately prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred
Stock for Certain Dilutive Issuances, Splits and Combinations. The Conversion
Price of the Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) (A) If the corporation shall issue,
after the date upon which any shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock were first issued (the "Purchase Date" with respect to such
series), any Additional Stock (as defined below) without consideration or for a
consideration per share less than the Conversion Price for such series in effect
immediately prior to the issuance of such Additional Stock, the Conversion Price
for such series in effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this clause (i)) be adjusted to a
price determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (including shares of Common Stock deemed to
be issued pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the number of shares
of Common Stock that the aggregate consideration received by the corporation for
such issuance would purchase at such Conversion Price; and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance (including shares of Common Stock deemed to be issued
pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the number of shares of such
Additional Stock.
(B) No adjustment of the
Conversion Price for the Preferred Stock shall be made in an amount less than
one cent per share, provided that any adjustments which are not required to be
made by reason of this sentence shall be carried forward and shall be either
taken into account in any subsequent adjustment made prior to 3 years from the
date of the event giving rise to the adjustment being carried forward, or shall
be made at the end of 3 years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for in
subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant
to this subsection 4(d)(i) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by this corporation for any
underwriting or otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of
the Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors irrespective of any accounting treatment.
7
<PAGE> 8
(E) In the case of the issuance
(whether before, on or after the applicable Purchase Date) of options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this subsection 4(d)(i) and
subsection 4(d)(ii):
1. The aggregate maximum
number of shares of Common Stock deliverable upon exercise (assuming the
satisfaction of any conditions to exercisability, including without limitation,
the passage of time, but without taking into account potential antidilution
adjustments) of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in subsections 4(d)(i)(C) and (d)(i)(D)), if any, received by
the corporation upon the issuance of such options or rights plus the minimum
exercise price provided in such options or rights (without taking into account
potential antidilution adjustments) for the Common Stock covered thereby.
2. The aggregate maximum
number of shares of Common Stock deliverable upon conversion of or in exchange
(assuming the satisfaction of any conditions to convertibility or
exchangeability, including, without limitation, the passage of time, but without
taking into account potential antidilution adjustments) for any such convertible
or exchangeable securities or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the corporation (without
taking into account potential antidilution adjustments) upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)).
3. In the event of any
change in the number of shares of Common Stock deliverable or in the
consideration payable to this corporation upon exercise of such options or
rights or upon conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.
4. Upon the expiration of
any such options or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to such convertible
or exchangeable securities, the Conversion Price of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock, to the extent in any way affected by or
computed using such
8
<PAGE> 9
options, rights or securities or options or rights related to such securities,
shall be recomputed to reflect the issuance of only the number of shares of
Common Stock (and convertible or exchangeable securities which remain in effect)
actually issued upon the exercise of such options or rights, upon the conversion
or exchange of such securities or upon the exercise of the options or rights
related to such securities.
5. The number of shares of
Common Stock deemed issued and the consideration deemed paid therefor pursuant
to subsections 4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect
any change, termination or expiration of the type described in either subsection
4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any
shares of Common Stock issued (or deemed to have been issued pursuant to
subsection 4(d)(i)(E)) by this corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to
a transaction described in subsection 4(d)(iii) hereof;
(B) shares of Common Stock issuable
or issued at fair market value, as determined in good faith by the Board of
Directors, to employees, consultants, directors or vendors (if in transactions
with primarily non-financing purposes) of this corporation directly or pursuant
to a stock option plan or restricted stock plan approved by the Board of
Directors of this corporation;
(C) shares of Common Stock issued or
issuable (I) in a Qualified IPO or (II) upon exercise of warrants or rights
granted to underwriters in connection with such Qualified IPO;
(D) the issuance of securities to
investment bankers or pursuant to corporate or strategic partnerships or
transactions that are approved by at least 66% of the members of the Board of
Directors;
(E) the issuance of securities to
lenders or lessors in connection with a bona fide loan or lease financing that
are approved by at least 66% of the members of the Board of Directors; or
(F) the issuance of securities
pursuant to the conversion or exercise of convertible or exercisable securities
the original issuance of which was under this Section 4(d)(ii).
(iii) In the event the corporation should at
any time or from time to time after the Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common
9
<PAGE> 10
Stock issuable upon conversion or exercise thereof), then, as of such record
date (or the date of such dividend distribution, split or subdivision if no
record date is fixed), the Conversion Price of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each share of such series shall
be increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in subsection 4(d)(i)(E).
(iv) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of such series shall be
decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event this
corporation shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by this corporation or other persons, assets
(excluding cash dividends) or options or rights not referred to in subsection
4(d)(iii), then, in each such case for the purpose of this subsection 4(f), the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of this corporation into
which their shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of this corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to
time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 4 or in Section 2) provision shall be made so that the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock, respectively, the number of shares of stock
or other securities or property of the Company or otherwise, to which a holder
of Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock after the
recapitalization to the end that the provisions of this Section 4 (including
adjustment of the conversion rate then in effect and the number of shares
purchasable upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock) shall be applicable after that event as nearly equivalent as may be
practicable.
10
<PAGE> 11
(g) No Impairment. This corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issued
upon the conversion of any share or shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock, and the number of shares of Common Stock to be issued
shall be rounded to the nearest whole share. Whether or not fractional shares
are issuable upon such conversion shall be determined on the basis of the total
number of shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock the
holder is at the time converting into Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock pursuant
to this Section 4, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. This corporation
shall, upon the written request at any time of any holder of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment or readjustment, (B)
the Conversion Price for the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock,
as the case may be, at the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property that at the time would be
received upon the conversion of a share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock.
(i) Notices of Record Date. In the event of any
taking by this corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock, at least 20 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
11
<PAGE> 12
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion.
This corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock,
in addition to such other remedies as shall be available to the holder of such
Preferred Stock, this corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to this certificate.
(k) Notices. Any notice required by the provisions
of this Section 4 to be given to the holders of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock shall be deemed given if delivered by
confirmed facsimile or electronic transmission or 3 days after deposited in the
United States mail, postage prepaid, and addressed to each holder of record at
his or her address appearing on the books of this corporation.
5. Voting Rights.
(a) Subject to Section 5(b) hereof, the holder of
each share of Preferred Stock shall have the right to one vote for each share of
Common Stock into which such share could then be converted (with any fractional
share determined on an aggregate conversion basis being rounded to the nearest
whole share), and with respect to such vote, such holder shall have full voting
rights and powers equal to the voting rights and powers of the holders of Common
Stock, and shall be entitled, notwithstanding any provision hereof, to notice of
any stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
(b) So long as 1,000,000 shares of Series E
Preferred Stock remain outstanding, one member of the Board of Directors of this
corporation shall be elected by the holders of Series E Preferred Stock, voting
together as a single class. So long as 1,000,000 shares of Series D Preferred
Stock remain outstanding, one member of the Board of Directors of this
corporation shall be elected by the holders of Series D Preferred Stock, voting
together as a single class. So long as 1,000,000 shares of Series C Preferred
Stock remain outstanding, one member of the Board of Directors of this
corporation
12
<PAGE> 13
shall be elected by the holders of Series C Preferred Stock, voting together as
a single class. So long as 1,000,000 shares of Series B Preferred Stock remain
outstanding, one member of the Board of Directors of this corporation shall be
elected by the holders of the Series B Preferred Stock, voting as a single
class. Two members of the Board of Directors of this corporation shall be
elected by the holders of the Common Stock, voting as a single class. Any
remaining of the Board of Directors of this corporation shall be elected by the
holders of the Series E Preferred Stock, Series D Preferred Stock, Series C
Preferred Stock, Series B Preferred Stock and Common Stock then outstanding,
voting together as a single class on an as converted basis. In the case of any
vacancy (other than a vacancy caused by removal) in the office of a director
occurring among the directors elected by the holders of a class or series of
stock pursuant to this Section 5(b), the remaining director(s), if any, so
elected by that class or series may, by affirmative vote of a majority thereof,
elect a successor or successors to hold office for the unexpired term of the
director or directors whose place or places shall be vacant. Any director who
shall have been elected by the holders of a class or series of stock or by any
director(s) so elected, as provided in this Section 5(b), may be removed during
the aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of the shares of the class or series of stock
entitled to elect such director or directors, given either at a special meeting
of such stockholders duly called for that purpose or pursuant to a written
consent of stockholders, and any vacancy thereby created may be filled by the
holders of that class of stock represented at the meeting or pursuant to written
consent.
6. Protective Provisions.
(a) Subject to the rights of series of Preferred
Stock that may from time to time come into existence, so long as 500,000 shares
of Preferred Stock are outstanding, this corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least two-thirds of the then outstanding shares of Preferred Stock
(voting together as a single class and on an as-converted basis):
(i) amend its Certificate of Incorporation
or Bylaws in a manner that would alter or change the rights, preferences or
privileges of the shares of Preferred Stock so as to affect adversely the
Preferred Stock;
(ii) increase or decrease the authorized
number of shares of Preferred Stock;
(iii) create any new class or series of
stock or any other securities convertible into equity securities of this
corporation with rights senior to or in parity with any series of Preferred
Stock with respect to dividends, redemption rights, or rights upon liquidation;
(iv) redeem any shares of Common Stock
(other than (A) pursuant to the repurchase of shares in connection with the
termination of service by a service provider or (B) with unanimous approval of
the Board of Directors);
(v) approve or enter into any (i)
acquisition of this corporation by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation, but excluding any merger effected
exclusively for the purpose of changing the domicile of this corporation); or
(ii) a sale of all or
13
<PAGE> 14
substantially all of the assets of this corporation; unless this corporation's
stockholders of record as constituted immediately prior to such acquisition or
sale will, immediately after such acquisition or sale (by virtue of securities
issued as consideration for this corporation's acquisition or sale or otherwise)
hold at least 50% of the voting power of the surviving or acquiring entity; or
(vi) declare or make payment of any dividend
on any shares of Common Stock.
(b) So long as any shares of Series E Preferred Stock
are outstanding, this corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of the
majority of the then outstanding shares of Series E Preferred Stock (voting
together as a single class and on an as-converted basis):
(i) amend its Certificate of Incorporation
or Bylaws in a manner that would alter or change the rights, preferences or
privileges of the shares of Series E Preferred Stock so as to affect adversely
the Series E Preferred Stock;
(ii) create any new class or series of stock
or any other securities convertible into equity securities of this corporation
with rights senior to the Series E Preferred Stock with respect to dividends
rights or rights upon liquidation;
(iii) redeem any shares of capital stock of
this corporation other than (A) pursuant to the repurchase of shares in
connection with the termination of service by a service provider or (B) with
unanimous approval of the Board of Directors;
(iv) approve or enter into any (i)
acquisition of this corporation by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation, but excluding any merger effected
exclusively for the purpose of changing the domicile of this corporation); or
(ii) a sale of all or substantially all of the assets of this corporation;
unless the holders of this corporation's Series E Preferred Stock as constituted
immediately prior to such acquisition or sale will, receive consideration in
such acquisition or sale equal to at least $10.955 per share (as adjusted for
any stock splits, combinations, stock dividends, recapitalization or the like),
valued in accordance with subparagraph 2(d)(ii).
7. Status of Converted Stock. In the event any shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock or Series E Preferred Stock shall be converted pursuant
to Section 4 hereof, the shares so converted shall be canceled and shall not be
issuable by this corporation. The Certificate of Incorporation of this
corporation shall be appropriately amended to effect the corresponding reduction
in this corporation's authorized capital stock.
8. Repurchase of Shares. In connection with repurchases by
this Corporation of its Common Stock pursuant to its agreements with certain of
the holders thereof, Sections 502 and 503 of the California General Corporation
Law shall not apply in whole or in part with respect to such repurchases.
14
<PAGE> 15
(C) Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of
all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of this corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or
winding up of this corporation, the assets of this corporation shall be
distributed as provided in Section 2 of Division (B) of this Article III hereof.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock
shall have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
Except as otherwise provided in this Amended and Restated
Certificate of Incorporation, in furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
repeal, alter, amend and rescind any or all of the Bylaws of the Company.
ARTICLE VI
The number of directors of the Company shall be not less than
six (6) and shall be subject to adjustment from time to time in accordance with
provisions therefore set forth in the Bylaws of the Company.
ARTICLE VII
Elections of directors need not be by written ballot unless
the Bylaws of the Company shall so provide.
ARTICLE VIII
Meeting of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Company may be
kept (subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Company.
ARTICLE IX
A director of the Company shall not be personally liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability
15
<PAGE> 16
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived any improper personal benefit. If the Delaware General
Corporation Law is amended after approval by the stockholders of this Article
further eliminating or limiting the personal liability of directors then the
liability of a director of the Company shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this
Article 9 by the stockholders of the Company shall not adversely affect any
right or protection of a director of the Company existing at the time, or
increase the liability of any director of this Company with respect to any acts
or omissions of such director occurring prior to, such repeal or modification.
ARTICLE X
To the fullest extent permitted by applicable law, this
Company is also authorized to provide indemnification of (and advancement of
expenses to) such agents (and any other persons to which Delaware law permits
this Company to provide indemnification) through Bylaw provisions, agreements
with such agents or other persons, vote of stockholders or disinterested
directors or otherwise, in excess of the indemnification and advancement
otherwise permitted by Section 145 of the General Corporation Law of the State
of Delaware, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to this
Company, its stockholders, and others.
Any repeal or modification of any of the foregoing provisions
of this Article 10 shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of this Company with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
ARTICLE XI
The Company reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
* * *
THREE: The foregoing amendment and restatement was approved by
the holders of the requisite number of shares of said corporation in accordance
with Section 228 of the General Corporation Law.
FOUR: That said amendment and restatement was duly adopted
in accordance with the provisions of Section 242 and 245 of the General
Corporation Law.
16
<PAGE> 17
IN WITNESS WHEREOF, the undersigned has executed this Amended
and Restated Certificate of Incorporation on this 16th day of December, 1999.
--------------------------------------
Rajen Jaswa, President
--------------------------------------
Sanjay Mittal, Secretary
<PAGE> 1
EXHIBIT 3.2
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SELECTICA, INC.
A DELAWARE CORPORATION
(PURSUANT TO SECTIONS 228, 242 AND 245
OF THE DELAWARE GENERAL CORPORATION LAW)
Selectica, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "General Corporation Law")
DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated on November 15,
1999, pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions proposing to
amend and restate the Certificate of Incorporation of the Corporation, declaring
said amendment and restatement to be advisable and in the best interests of the
Corporation and its stockholders, and authorizing the appropriate officers of
the Corporation to solicit the consent of the stockholders therefor, which
resolution setting forth the proposed amendment and restatement is as follows:
"RESOLVED, that the Certificate of Incorporation of the Corporation be
amended and restated in its entirety as follows:
ARTICLE I
The name of the corporation is Selectica, Inc. (the "Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 15 East North Street, in the City of Dover, County of Kent. The name
of its registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
<PAGE> 2
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of shares of Common Stock authorized to be issued is one
hundred and fifty million (150,000,000), par value $0.0001 per share, and the
number of Preferred Stock authorized to be issued is ten million (10,000,000),
par value $0.0001 per share.
The Preferred Stock may be issued from time to time in one or more series,
without further stockholder approval. The Board of Directors is hereby
authorized, in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any wholly unissued series of Preferred Stock, within
the limitations and restrictions stated in this Second Amended and Restated
Certificate of Incorporation (the "Restated Certificate"), to fix or alter the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or any of them, and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
ARTICLE V
Except as otherwise provided in this Restated Certificate, in furtherance
and not in limitation of the powers conferred by statute, the Board of Directors
is expressly authorized to make, repeal, alter, amend and rescind any or all of
the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from time to time
by a bylaw or amendment thereof duly adopted by the Board of Directors.
The Board of Directors shall be and is divided into three classes, Class I,
Class II and Class III. Such classes shall be as nearly equal in number of
directors as possible. Each director shall serve for a term ending on the third
annual meeting following the annual meeting at which such director was elected;
provided, however, that the directors first elected to Class I shall serve for a
term ending on the annual meeting of stockholders for fiscal year 2000, the
directors first elected to Class II shall serve for a term ending on the annual
meeting of stockholders for fiscal year 2001, and the directors first elected to
Class III shall serve for a term ending on the annual meeting of stockholders
for fiscal year 2002. The foregoing notwithstanding, each director shall serve
until his successor shall have been duly elected and qualified, unless he shall
resign, become disqualified, disabled or shall otherwise be removed.
2
<PAGE> 3
At each annual election, directors chosen to succeed those whose terms then
expire shall be of the same class as the directors they succeed, unless by
reason of any intervening changes in the authorized number of directors, the
Board shall designate one or more directorships whose term then expires as
directorships of another class in order more nearly to achieve equality of
number of directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly equal in
number of directors as possible, in the event of any change in the authorized
number of directors each director then continuing to serve as such shall
nevertheless continue as a director of the class of which he is a member until
the expiration of his current term, or his prior death, resignation or removal.
If any newly created directorship may, consistently with the rule that the three
classes shall be as nearly equal in number of directors as possible, be
allocated to either class, the Board shall allocate it to that of the available
class whose term of office is due to expire at the earliest date following such
allocation.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
ARTICLE VIII
Except as otherwise provided in this Amended and Restated Certificate, any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at an annual or special meeting of the stockholders of the
Corporation, and no action required to be taken or that may be taken at any
annual or special meeting of the stockholders of the Corporation may be taken by
written consent.
ARTICLE IX
A director of the Corporation shall, to the fullest extent permitted by the
General Corporation Law as it now exists or as it may hereafter be amended, not
be personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit. If the General Corporation Law is amended, after
approval by the stockholders of this Article, to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the General Corporation Law, as so amended.
Any amendment, repeal or modification of this Article IX, or the adoption
of any provision of this Amended and Restated Certificate of Incorporation
inconsistent with this Article IX, by the stockholders of the Corporation shall
not apply to or adversely affect any right
3
<PAGE> 4
or protection of a director of the Corporation existing at the time of such
amendment, repeal, modification or adoption.
ARTICLE X
In addition to any vote of the holders of any class or series of the stock
of the Corporation required by law or by this Second Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of a majority
of the voting power of all of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal any provision
of this Second Amended and Restated Certificate of Incorporation.
ARTICLE XI
To the fullest extent permitted by applicable law, the Corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of the Corporation (and any other persons to which General Corporation Law
permits the Corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law,
subject only to limits created by applicable General Corporation Law (statutory
or non-statutory), with respect to actions for breach of duty to the
Corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions of this
Article XI shall not adversely affect any right or protection of a director,
officer, agent, or other person existing at the time of, or increase the
liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to, such amendment,
repeal or modification.
* * * *
THIRD: The foregoing amendment and restatement was approved by the holders
of the requisite number of shares of said corporation in accordance with Section
228 of the General Corporation Law.
FOURTH: That said amendment and restatement was duly adopted in accordance
with the provisions of Section 242 and 245 of the General Corporation Law.
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned has signed this Certificate this ___
day of ___________, 2000.
----------------------------------------
Rajen Jaswa
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 3.3
BYLAWS OF
SELECTICA, INC.,
A DELAWARE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I OFFICE AND RECORDS......................................................1
Section 1.1 Delaware Office..............................................1
Section 1.2 Other Offices................................................1
Section 1.3 Books and Records............................................1
ARTICLE II STOCKHOLDERS...........................................................1
Section 2.1 Annual Meeting...............................................1
Section 2.2 Special Meeting..............................................1
Section 2.3 Place of Meeting.............................................1
Section 2.4 Notice of Meeting............................................2
Section 2.5 Quorum and Adjournment.......................................2
Section 2.6 Proxies......................................................2
Section 2.7 Notice of Stockholder Business and Nominations...............2
Section 2.8 Procedure for Election of Directors..........................5
Section 2.9 Inspectors of Elections; Opening and Closing the Polls.......5
Section 2.10 Consent of Stockholders in Lieu of Meeting..................5
ARTICLE III BOARD OF DIRECTORS....................................................6
Section 3.1 General Powers...............................................6
Section 3.2 Number, Tenure and Qualifications............................6
Section 3.3 Regular Meetings.............................................6
Section 3.4 Special Meetings.............................................6
Section 3.5 Notice.......................................................6
Section 3.6 Conference Telephone Meetings................................7
Section 3.7 Quorum.......................................................7
Section 3.8 Vacancies....................................................7
Section 3.9 Committee....................................................7
Section 3.10 Removal......................................................8
ARTICLE IV OFFICERS...............................................................8
Section 4.1 Elected Officers.............................................8
Section 4.2 Election and Term of Office..................................8
Section 4.3 Chairman of the Board........................................8
Section 4.4 President and Chief Executive Officer........................8
Section 4.5 Secretary....................................................8
Section 4.6 Treasurer....................................................9
Section 4.7 Removal......................................................9
Section 4.8 Vacancies....................................................9
ARTICLE V STOCK CERTIFICATES AND TRANSFERS........................................9
Section 5.1 Stock Certificates and Transfers.............................9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI INDEMNIFICATION.......................................................10
Section 6.1 Right to Indemnification....................................10
Section 6.2 Prepayment of Expenses......................................10
Section 6.3 Claims......................................................10
Section 6.4 Nonexclusivity of Rights....................................11
Section 6.5 Amendment or Repeal.........................................11
Section 6.6 Other Indemnification and Prepayment of Expenses............11
ARTICLE VII MISCELLANEOUS PROVISIONS.............................................11
Section 7.1 Fiscal Year.................................................11
Section 7.2 Dividends...................................................11
Section 7.3 Seal........................................................11
Section 7.4 Waiver of Notice............................................11
Section 7.5 Audits......................................................11
Section 7.6 Resignations................................................11
Section 7.7 Contracts...................................................12
Section 7.8 Proxies.....................................................12
ARTICLE VIII AMENDMENTS 12
Section 8.1 Amendments..................................................12
</TABLE>
<PAGE> 4
ARTICLE I
OFFICES AND RECORDS
Section 1.1 Delaware Office. The registered office of the Corporation in
the State of Delaware shall be located in the City of Dover, County of Kent.
Section 1.2 Other Offices. The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
Section 1.3 Books and Records. The books and records of the Corporation
may be kept at the Corporation's headquarters in San Jose, California or at such
other locations outside the State of Delaware as may from time to time be
designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1 Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held at such date, place and/or time as may be fixed by
resolution of the Board of Directors.
Section 2.1 Special Meeting.
A. Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the certificate of incorporation,
may be called by the president and shall be called by the president or secretary
at the request in writing of a majority of the Board of Directors, or at the
request in writing of stockholders owning at least ten percent (10%) in amount
of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
B. Notwithstanding the above provisions of this Section 2.2(A),
effective upon a closing of an initial public offering of the Corporation's
securities pursuant to a registration statement filed under the Securities Act
of 1933, as amended, a special meeting of the stockholders of the corporation
may be called only by the President, the Chairman of the Board or by the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of directors which the Corporation would have if there were no vacancies (the
"Whole Board"), or at the request in writing of stockholders owning at least
fifty percent (50%) in amount of the entire capital stock of the corporation
issued and outstanding and entitled to vote.
Section 2.3 Place of Meeting. The Board of Directors may designate the
place of meeting for any meeting of the stockholders. If no designation is made
by the Board of Directors, the place of meeting shall be the principal office of
the Corporation.
<PAGE> 5
Section 2.4 Notice of Meeting. Written or printed notice, stating the
place, day and hour of the meeting and the purposes for which the meeting is
called, shall be prepared and delivered by the Corporation not less than ten
days nor more than sixty days before the date of the meeting, either personally,
or by mail, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail with postage thereon prepaid, addressed to the stockholder at his
address as it appears on the stock transfer books of the Corporation. Such
further notice shall be given as may be required by law. Meetings may be held
without notice if all stockholders entitled to vote are present (except as
otherwise provided by law), or if notice is waived by those not present. Any
previously scheduled meeting of the stockholders may be postponed and (unless
the Certificate of Incorporation otherwise provides) any special meeting of the
stockholders may be cancelled, by resolution of the Board of Directors upon
public notice given prior to the time previously scheduled for such meeting of
stockholders.
Section 2.5 Quorum and Adjournment. Except as otherwise provided by law or
by the Certificate of Incorporation, the holders of a majority of the voting
power of the outstanding shares of the Corporation entitled to vote generally in
the election of directors (the "Voting Stock"), represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series voting separately as a
class or series, the holders of a majority of the voting power of the shares of
such class or series shall constitute a quorum for the transaction of such
business. The chairman of the meeting or a majority of the shares of Voting
Stock so represented may adjourn the meeting from time to time, whether or not
there is such a quorum (or, in the case of specified business to be voted on by
a class or series, the chairman or a majority of the shares of such class or
series so represented may adjourn the meeting with respect to such specified
business). No notice of the time and place of adjourned meetings need be given
except as required by law. The stockholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
Section 2.6 Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or as may be permitted by
law, or by his duly authorized attorney-in-fact. Such proxy must be filed with
the Secretary of the Corporation or his representative at or before the time of
the meeting.
Section 2.7 Notice of Stockholder Business and Nominations.
A. Annual Meeting of Stockholders.
(1) Nominations of persons for election to the Board of Directors
of the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders: (a) pursuant to
the Corporation's notice of meeting delivered pursuant to Section 2.4 of these
Bylaws; (b) by or at the direction of the Chairman of the Board or the Board of
Directors; or (c) by any stockholder of the Corporation who is entitled to vote
at the meeting, who has complied with the notice procedures set forth in
2
<PAGE> 6
clauses (2) and (3) of this paragraph (A) of this Bylaw and who was a
stockholder of record at the time such notice was delivered to the Secretary of
the Corporation.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to a clause (c) of paragraph
(A)(1) of this Bylaw, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than seventy days nor more than
ninety days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than twenty days, or delayed by more than seventy
days, from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the seventieth day prior to
such annual meeting or the ten day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder, including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected; (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner. In no event shall the public announcement of an adjournment of
an annual meeting commence a new time period for the giving of a stockholder's
notice as described above.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Bylaw to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the Corporation
at least eighty days prior to the first anniversary of the preceding year's
annual meeting, a stockholder's notice required by this Bylaw shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
3
<PAGE> 7
B. Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting pursuant to Section
2.4 of these Bylaws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this Bylaw and who is a stockholder of record at the
time such notice is delivered to the Secretary of the Corporation. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as are specified in the Corporation's Notice of Meeting, if the
stockholder's notice as required by paragraph (A)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the ninetieth day prior to such special meeting and not later
than the close of business on the later of the seventieth day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment of a special meeting commence a new time
period for the giving of a stockholder's notice as described above.
C. General.
(1) Only persons who are nominated in accordance with the
procedures set forth in this Bylaw shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Bylaw. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Bylaw and, if any proposed nomination or business is not in compliance
with this Bylaw, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Bylaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
4
<PAGE> 8
Section 2.8 Procedure for Election of Directors. Election of directors at
all meetings of the stockholders at which directors are to be elected shall be
by written ballot, and, except as otherwise set forth in the Certificate of
Incorporation with respect to the right of the holders of any series of
Preferred Stock or any other series or class of stock to elect additional
directors under specified circumstances, a plurality of the votes cast thereat
shall elect directors. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, all matters other than the election of directors
submitted to the stockholders at any meeting shall be decided by the affirmative
vote of a majority of the voting power of the outstanding Voting Stock present
in person or represented by proxy at the meeting and entitled to vote thereon.
Section 2.9 Inspectors of Elections; Opening and Closing the Polls.
A. The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives of the Corporation, to act at the meeting
and make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act, or if all inspectors or alternates who
have been appointed are unable to act, at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by the General Corporation Law of the State of
Delaware.
B. The chairman of the meeting shall fix and announce at the meeting
the date and time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at a meeting.
Section 2.10 Consent of Stockholders in Lieu of Meeting.
A. Unless otherwise provided in the certificate of incorporation, any
action required to be taken at any annual or special meeting of stockholders of
the Corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Any written consent may be revoked by a writing
received by the Secretary of the Corporation prior to the time that written
consents of the number of shares required to authorize the proposed action have
been filed with the Secretary.
B. Notwithstanding the above provisions of this Section 2.10(A),
effective upon a closing of an initial public offering of the Corporation's
securities pursuant to a registration statement filed under the Securities Act
of 1933, as amended, the stockholders of
5
<PAGE> 9
the Corporation may not take action by written consent without a meeting but
must take any such actions at a duly called annual or special meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board of Directors may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by law, by the Certificate of
Incorporation or by these Bylaws required to be exercised or done by the
stockholders.
Section 3.2 Number, Tenure and Qualifications. Subject to the rights of the
holders of any series of Preferred Stock, or any other series or class of stock
as set forth in the Certificate of Incorporation, to elect directors under
specified circumstances, the number of directors shall initially be seven and
shall be fixed from time to time thereafter by a majority of the Board of
Directors.
Section 3.3 Regular Meetings. A regular meeting of the Board of Directors
shall be held without notice other than this Bylaw immediately after, and at the
same place as, each annual meeting of stockholders. The Board of Directors may,
by resolution, provide the time and place for the holding of additional regular
meetings without notice other than such resolution.
Section 3.4 Special Meetings. Special meetings of the Board of Directors
shall be called at the request of the Chairman of the Board, the President or a
majority of the Board of Directors. The person or persons authorized to call
special meetings of the Board of Directors may fix the place and time of the
meetings.
Section 3.5 Notice. Notice of any special meeting shall be given to each
director at his business or residence in writing or by telegram or by telephone
communication. If mailed, such notice shall be deemed adequately delivered when
deposited in the United States mails so addressed, with postage thereon prepaid,
at least five days before such meeting. If by telegram, such notice shall be
deemed adequately delivered when the telegram is delivered to the telegraph
company at least twenty-four hours before such meeting. If by facsimile
transmission, such notice shall be transmitted at least twenty-four hours before
such meeting. If by telephone, the notice shall be given at least twelve hours
prior to the time set for the meeting. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice of such meeting, except for amendments to these
Bylaws as provided under Section 8.1 of Article VIII hereof. A meeting may be
held at any time without notice if all the directors are present (except as
otherwise provided by law) or if those not present waive notice of the meeting
in writing, either before or after such meeting.
6
<PAGE> 10
Section 3.6 Conference Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 3.7 Quorum. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 3.8 Vacancies. Subject to the rights of the holders of any series
of Preferred Stock, or any other series or class of stock as set forth in the
Certificate of Incorporation, to elect additional directors under specified
circumstances, and unless the Board of Directors otherwise determines, vacancies
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships resulting from any
increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors, though less than a
quorum of the Board of Directors, and directors so chosen shall hold office for
a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Whole Board shall shorten
the term of any incumbent director.
Section 3.9 Committee.
A. The Board of Directors may designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a member of the
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it.
B. Unless the Board of Directors otherwise provides, each committee
designated by the Board of Directors may make, alter and repeal rules for the
conduct of its business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board of Directors conducts its
business pursuant to these Bylaws.
7
<PAGE> 11
Section 3.10 Removal. Subject to the rights of the holders of any series
of Preferred Stock, or any other series or class of stock as set forth in the
Certificate of Incorporation, to elect additional directors under specified
circumstances, any director, or the entire Board of Directors, may be removed
from office at any time, with or without cause, only by the affirmative vote of
the holders of at least sixty-six and two-thirds percent (66 2/3 %) of the
voting power of the then outstanding Voting Stock, voting together as a single
class.
ARTICLE IV
OFFICERS
Section 4.1 Elected Officers. The elected officers of the Corporation
shall be a Chairman of the Board, a President, a Secretary, a Treasurer, and
such other officers as the Board of Directors from time to time may deem proper.
The Chairman of the Board shall be chosen from the directors. All officers
chosen by the Board of Directors shall each have such powers and duties as
generally pertain to their respective offices, subject to the specific
provisions of this Article IV. Such officers shall also have powers and duties
as from time to time may be conferred by the Board of Directors or by any
committee thereof.
Section 4.2 Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to Section
4.7 of these Bylaws, each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign.
Section 4.3 Chairman of the Board. The Chairman of the Board shall preside
at all meetings of the Board. Section 1.27 President and Chief Executive
Officer. The President and Chief Executive Officer shall be the general manager
of the Corporation, subject to the control of the Board of Directors, and as
such shall preside at all meetings of shareholders, shall have general
supervision of the affairs of the Corporation, shall sign or countersign or
authorize another officer to sign all certificates, contracts, and other
instruments of the Corporation as authorized by the Board of Directors, shall
make reports to the Board of Directors and shareholders, and shall perform all
such other duties as are incident to such office or are properly required by the
Board of Directors. If the Board of Directors creates the office of Chief
Executive Officer as a separate office from President, the President shall be
the chief operating officer of the corporation and shall be subject to the
general supervision, direction, and control of the Chief Executive Officer
unless the Board of Directors provides otherwise.
Section 4.5 Secretary. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors and all other notices
required by law or by these Bylaws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the Chairman of the Board or the President, or by the Board
8
<PAGE> 12
of Directors, upon whose request the meeting is called as provided in these
Bylaws. He shall record all the proceedings of the meetings of the Board of
Directors, any committees thereof and the stockholders of the Corporation in a
book to be kept for that purpose, and shall perform such other duties as may be
assigned to him by the Board of Directors, the Chairman of the Board or the
President. He shall have custody of the seal of the Corporation and shall affix
the same to all instruments requiring it, when authorized by the Board of
Directors, the Chairman of the Board or the President, and attest to the same.
Section 4.6 Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate receipts and
disbursements in books belonging to the Corporation. The Treasurer shall deposit
all moneys and other valuables in the name and to the credit of the Corporation
in such depositaries as may be designated by the Board of Directors. The
Treasurer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors the Chairman of the Board, or the President, taking proper
vouchers for such disbursements. The Treasurer shall render to the Chairman of
the Board, the President and the Board of Directors, whenever requested, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond for the faithful discharge of his duties in such amount
and with such surety as the Board of Directors shall prescribe.
Section 4.7 Removal. Any officer elected by the Board of Directors may be
removed by the Board of Directors whenever, in their judgment, the best
interests of the Corporation would be served thereby. No elected officer shall
have any contractual rights against the Corporation for compensation by virtue
of such election beyond the date of the election of his successor, his death,
his resignation or his removal, whichever event shall first occur, except as
otherwise provided in an employment contract or an employee plan.
Section 4.8 Vacancies. A newly created office and a vacancy in any office
because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
Section 5.1 Stock Certificates and Transfers.
A. The interest of each stockholder of the Corporation shall be
evidenced by certificates for shares of stock in such form as the appropriate
officers of the Corporation may from time to time prescribe. The shares of the
stock of the Corporation shall be transferred on the books of the Corporation by
the holder thereof in person or by his attorney, upon surrender for cancellation
of certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, and with such
proof of the authenticity of the signature as the Corporation or its agents may
reasonably require.
9
<PAGE> 13
B. The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Right to Indemnification. The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person (an "Indemnitee") who was or is
made or is threatened to be made a party or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or,
while a director or officer of the Corporation, is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or nonprofit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees) reasonably
incurred by such Indemnitee. Notwithstanding the preceding sentence, except as
otherwise provided in Section 6.3, the Corporation shall be required to
indemnify an Indemnitee in connection with a proceeding (or part thereof)
commenced by such Indemnitee only if the commencement of such proceeding (or
part thereof) by the Indemnitee was authorized by the Board of Directors of the
Corporation.
Section 6.2 Prepayment of Expenses. The Corporation shall pay the expenses
(including attorneys' fees) incurred by an Indemnitee in defending any
proceeding in advance of its final disposition, provided, however, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Article VI or otherwise.
Section 6.3 Claims. If a claim for indemnification or payment of expenses
under this Article VI is not paid in full within sixty days after a written
claim therefor by the Indemnitee has been received by the Corporation, the
Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the Corporation shall have the burden
of proving that the Indemnitee is not entitled to the requested indemnification
or payment of expenses under applicable law.
10
<PAGE> 14
Section 6.4 Nonexclusivity of Rights. The rights conferred on any
Indemnitee by this Article VI shall not be exclusive of any other rights which
such Indemnitee may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise.
Section 6.5 Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any Indemnitee in respect of any act or omission
occurring prior to the time of such repeal or modification.
Section 6.6 Other Indemnification and Prepayment of Expenses. This Article
VI shall not limit the right of the Corporation, to the extent and in the manner
permitted by law, to indemnify and to advance expenses to persons other than
Indemnitees when and as authorized by appropriate corporate action.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Fiscal Year. The fiscal year of the Corporation shall begin on
the first day of April and end on the thirty-first day of March of each year.
Section 7.2 Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its Certificate of
Incorporation.
Section 7.3 The corporate seal shall have inscribed the name of the
Corporation thereon and shall be in such form as may be approved from time to
time by the Board of Directors.
Section 7.4 Waiver of Notice. Whenever any notice is required to be given
to any stockholder or director of the Corporation under the provisions of the
General Corporation Law of the State of Delaware, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at, nor the purpose of, any annual
or special meeting of the stockholders of the Board of Directors need be
specified in any waiver of notice of such meeting.
Section 7.5 Audits. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be made annually.
Section 7.6 Resignations. Any director or any officer, whether elected or
appointed, may resign at any time by serving written notice of such resignation
on the Chairman of the Board, the President or the Secretary, and such
resignation shall be deemed to be effective
11
<PAGE> 15
as of the close of business on the date said notice is received by the Chairman
of the Board, the President, or the Secretary or at such later date as is stated
therein. No formal action shall be required of the Board of Directors or the
stockholders to make any such resignation effective.
Section 7.7 Contracts. Except as otherwise required by law, the
Certificate of Incorporation or these Bylaws, any contracts or other instruments
may be executed and delivered in the name and on the behalf of the Corporation
by such officer or officers of the Corporation as the Board of Directors may
from time to time direct. Such authority may be general or confined to specific
instances as the Board may determine. The Chairman of the Board, the President
or any Vice President may execute bonds, contracts, deeds, leases and other
instruments to be made or executed for or on behalf of the Corporation. Subject
to any restrictions imposed by the Board of Directors or the Chairman of the
Board, the President or any Vice President of the Corporation may delegate
contractual powers to others under his jurisdiction, it being understood,
however, that any such delegation of power shall not relieve such officer of
responsibility with respect to the exercise of such delegated power.
Section 7.8 Proxies. Unless otherwise provided by resolution adopted by
the Board of Directors, the Chairman of the Board, the President or any Vice
President may from time to time appoint any attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to cast
the votes which the Corporation may be entitled to cast as the holder of stock
or other securities in any other corporation or other entity, any of whose stock
or other securities may be held by the Corporation, at meetings of the holders
of the stock and other securities of such other corporation or other entity, or
to consent in writing, in the name of the Corporation as such holder, to any
action by such other corporation or other entity, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the Corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.
ARTICLE VIII
AMENDMENTS
Section 8.1 Amendments. These Bylaws may be amended, altered, added to,
rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of a meeting of the Board of Directors, in a notice
given no less than twenty-four hours prior to the meeting; provided, however,
that, notwithstanding any other provisions of these Bylaws or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class or series of the
stock required by law, the Certificate of Incorporation or these Bylaws, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required in order for stockholders to
alter, amend or repeal any provision of these Bylaws or to adopt any additional
bylaw.
12
<PAGE> 16
CERTIFICATE OF SECRETARY OF
Selectica, Inc.
The undersigned, Sanjay Mittal, hereby certifies that he is the duly
elected and acting Secretary of Selectica, Inc., a Delaware corporation (the
"Corporation"), and that the Amended and Restated Bylaws attached hereto
constitute the Bylaws of said Corporation as duly adopted by the Directors on
November 18, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name this
19th day of November, 1999.
----------------------------------------
Sanjay Mittal
Secretary
<PAGE> 1
EXHIBIT 4.5
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
WARRANT TO PURCHASE COMMON STOCK
OF
SELECTICA, INC.
VOID AFTER JANUARY 14, 2002
This Warrant is issued to Cisco Systems, Inc. ("Holder") by
Selectica, Inc., a California corporation (the "Company"), on January 14, 2000
(the "Warrant Issue Date").
1. Purchase of Shares. The Holder is entitled, upon surrender of
this Warrant at the principal office of the Company (or at such other place as
the Company shall notify the holder hereof in writing), to purchase from the
Company up to eight hundred thousand (800,000) shares of Common Stock of the
Company ("Common Stock").
2. Exercise Price. The exercise price for the Shares shall be the
lesser of the $13.00 per share and the initial offering price as listed on the
cover of the registration statement of the Company's initial public offering.
Such price shall be subject to adjustment pursuant to Section 9 hereof (such
price, as adjusted from time to time, is herein referred to as the "Exercise
Price")
3. Term. This Warrant shall remain exercisable until 5:00 p.m. on
January 14, 2002; provided, however, that in the event of (a) the closing of the
Company's sale or transfer of all or substantially all of its assets, or (b) the
closing of the acquisition of the Company by another entity by means of merger,
consolidation or other transaction or series of related transactions, resulting
in the exchange of the outstanding shares of the Company's capital stock such
that the shareholders of the Company prior to such transaction own, directly or
indirectly, less than 50% of the voting power of the surviving entity, this
Warrant shall, on the date of such event, no longer be exercisable and become
null and void. In the event of a proposed transaction of the kind described
above, the Company shall notify the holder of the Warrant at least fifteen (15)
days prior to the consummation of such event or transaction.
4. Registration Rights. If (but without any obligation to do so)
the Company proposes to register any of its stock or other securities under the
Act in connection with a public offering of such securities solely for cash
(other than a registration relating solely to the sale of
<PAGE> 2
securities to participants in a Company stock plan, or a registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Common Stock), the Company shall, at such time, promptly give the Holder written
notice of such registration. Upon the written request of each Holder given
within twenty (20) days after mailing of such notice by the Company in
accordance with Section 16 hereof, the Company shall, subject to the provisions
of Subsection (b) hereof, cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered
("Piggyback Rights").
(a) Expenses of Company Registration. The Company shall
bear and pay all expenses incurred in connection with any registration, filing,
or qualification of Registrable Securities with respect to the registrations
pursuant to this Section 4 for each Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto and the fees and disbursements of one counsel
for the selling shareholders, but excluding underwriting discounts and
commissions relating to the Common Stock.
(b) Underwriting Requirements. In connection with any
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under this Section 4 to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (or by other persons entitled to select the underwriters), and then only in
such quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Common Stock, requested by shareholders to be included in
such offering exceeds the amount of securities sold other than by the Company
that the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Common Stock, which the
underwriters determine in their sole discretion will not jeopardize the success
of the offering (the securities so included to be apportioned pro rata among the
selling shareholders according to the total amount of securities entitled to be
included therein owned by each selling shareholder or in such other proportions
as shall mutually be agreed to by such selling shareholders) but in no event
shall the amount of securities of the selling Shareholders included in the
offering be reduced below thirty percent (30%) of the total amount of securities
requested by each such selling Holder to be included in such offering, unless
such offering is the Company's Initial Public Offering in which case the selling
shareholders may be excluded entirely if the underwriters make the determination
described above.
5. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) the surrender of the Warrant, together with a duly
executed copy of the form of Notice of Election attached hereto, to the
Secretary of the Company at its principal offices; and
2
<PAGE> 3
(b) the payment to the Company of an amount equal to the
aggregate Exercise Price for the number of Shares being purchased.
6. Net Exercise. In lieu of exercising this Warrant pursuant to
Section 5, the Holder may elect to receive, without the payment by the Holder of
any additional consideration, shares of Common Stock equal to the value of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at
the principal office of the Company together with notice of such election, in
which event the Company shall issue to the holder hereof a number of shares of
Common Stock computed using the following formula:
Y (A - B)
---------
X = A
Where: X = The number of shares of Common Stock to be issued
to the Holder pursuant to this net exercise;
Y = The number of Shares in respect of which the net
issue election is made;
A = The fair market value of one share of the Common
Stock at the time the net issue election is made;
B = The Exercise Price (as adjusted to the date of the
net issuance).
For purposes of this Section 6, the fair market value of one share of Common
Stock as of a particular date shall be the fair market value thereof, as
determined in good faith by the Board of Directors of the Company; provided,
that, if the Warrant is being exercised upon the closing of the IPO, the value
will be the Price to Public of one share of such Common Stock specified in the
final prospectus with respect to such offering.
7. Certificates for Shares. Upon the exercise of the purchase
rights evidenced by this Warrant, one or more certificates for the number of
Shares so purchased shall be issued as soon as practicable thereafter (with
appropriate restrictive legends, if applicable), and in any event within thirty
(30) days of the delivery of the subscription notice.
8. Issuance of Shares. The Company covenants that the Shares,
when issued pursuant to the exercise of this Warrant, will be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens, and charges
with respect to the issuance thereof.
9. Adjustment of Exercise Price and Number of Shares. The number
of and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the
Company shall at any time prior to the expiration of this Warrant subdivide its
Common Stock, by split-up or otherwise, or combine its Common Stock, or issue
additional shares of its Common Stock or Common Stock as a dividend with respect
to any shares of its Common Stock, the number of Shares issuable on the exercise
of this Warrant shall forthwith be proportionately increased in the
3
<PAGE> 4
case of a subdivision or stock dividend, or proportionately decreased in the
case of a combination. Appropriate adjustments shall also be made to the
purchase price payable per share, but the aggregate purchase price payable for
the total number of Shares purchasable under this Warrant (as adjusted) shall
remain the same. Any adjustment under this Section 9(a) shall become effective
at the close of business on the date the subdivision or combination becomes
effective, or as of the record date of such dividend, or in the event that no
record date is fixed, upon the making of such dividend.
(b) Reclassification, Reorganization and Consolidation. In
case of any reclassification, capital reorganization, or change in the Common
Stock of the Company (other than as a result of a subdivision, combination, or
stock dividend provided for in Section 9(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant, the kind and amount of shares
of stock and other securities and property receivable in connection with such
reclassification, reorganization, or change by a holder of the same number of
shares of Common Stock as were purchasable by the Holder immediately prior to
such reclassification, reorganization, or change. In any such case appropriate
provisions shall be made with respect to the rights and interest of the Holder
so that the provisions hereof shall thereafter be applicable with respect to any
shares of stock or other securities and property deliverable upon exercise
hereof, and appropriate adjustments shall be made to the purchase price per
share payable hereunder, provided the aggregate purchase price shall remain the
same.
(c) Notice of Adjustment. When any adjustment is required
to be made in the number or kind of shares purchasable upon exercise of the
Warrant, or in the Warrant Price, the Company shall promptly notify the holder
of such event and of the number of shares of Common Stock or other securities or
property thereafter purchasable upon exercise of this Warrant.
10. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price then in effect.
11. No Shareholder Rights. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights of a shareholder with respect to the
Shares, including (without limitation) the right to vote such Shares, receive
dividends or other distributions thereon, exercise preemptive rights or be
notified of shareholder meetings, and such holder shall not be entitled to any
notice or other communication concerning the business or affairs of the Company.
However, nothing in this Section 11 shall limit the right of the Holder to be
provided the Notices required under this Warrant.
12. "Market Stand-Off" Agreement. The Holder hereby agrees that
it will not, without the prior written consent of the managing underwriter,
during the period commencing on the date of the final prospectus relating to the
Company's initial public offering and ending on the date specified by the
Company and the managing underwriter (such period not to exceed one
4
<PAGE> 5
hundred eighty (180) days) (i) lend, offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock (whether such
shares or any such securities are then owned by the Holder or are thereafter
acquired), or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The underwriters in connection with the Company's initial
public offering are intended third party beneficiaries of this Section 12 and
shall have the right, power and authority to enforce the provisions hereof as
though they were a party hereto.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to any shares of capital stock of
the Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
13. Transfers of Warrant. This Warrant and all rights hereunder
are not transferable in whole or in part by the Holder.
14. Successors and Assigns. The terms and provisions of this
Warrant and the Purchase Agreement shall inure to the benefit of, and be binding
upon, the Company and the Holders hereof and their respective successors and
assigns.
15. Amendments and Waivers. Any term of this Warrant may be
amended and the observance of any term of this Warrant may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the Holder.
16. Notices. All notices required under this Warrant and shall be
deemed to have been given or made for all purposes (i) upon personal delivery,
(ii) upon confirmation receipt that the communication was successfully sent to
the applicable number if sent by facsimile; (iii) one day after being sent, when
sent by professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail. Notices to the Company shall be sent
to the principal office of the Company (or at such other place as the Company
shall notify the Holder hereof in writing). Notices to the Holder shall be sent
to the address of the Holder on the books of the Company (or at such other place
as the Holder shall notify the Company hereof in writing).
17. Attorneys' Fees. If any action of law or equity is necessary
to enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to its reasonable attorneys' fees, costs and disbursements in addition
to any other relief to which it may be entitled.
18. Captions. The section and subsection headings of this Warrant
are inserted for convenience only and shall not constitute a part of this
Warrant in construing or interpreting any provision hereof.
5
<PAGE> 6
19. Governing Law. This Warrant shall be governed by the laws of
the State of California as applied to agreements among California residents made
and to be performed entirely within the State of California.
6
<PAGE> 7
IN WITNESS WHEREOF, the Company caused this Warrant to be
executed by an officer thereunto duly authorized.
SELECTICA, INC.
By:
------------------------------
Name:
-----------------------------
Title:
---------------------------
AGREED AND ACKNOWLEDGED:
CISCO SYSTEMS, INC.
By:
------------------------------
Name:
-----------------------------
Title:
---------------------------
<PAGE> 8
NOTICE OF EXERCISE
To: SELECTICA, INC.
The undersigned hereby elects to [check applicable subsection]:
________ (a) Purchase _________________ shares of Series ___Common
Stock of _________________, pursuant to the terms of the
attached Warrant and payment of the Exercise Price per
share required under such Warrant accompanies this
notice;
OR
________ (b) Exercise the attached Warrant for [all of the shares]
[________ of the shares] [cross out inapplicable phrase]
purchasable under the Warrant pursuant to the net
exercise provisions of Section 5 of such Warrant.
The undersigned hereby represents and warrants that the
undersigned is acquiring such shares for its own account for investment purposes
only, and not for resale or with a view to distribution of such shares or any
part thereof.
CISCO SYSTEMS, INC.
By:
------------------------------
Name:
-----------------------------
Title:
---------------------------
Address:
--------------------------
Date:
-----------------------------
<PAGE> 1
EXHIBIT 5.1
GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
155 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
TELEPHONE (650) 321-2400 FACSIMILE (650) 321-2800
February 1, 2000
Selectica, Inc.
3 West Plumeria Drive
San Jose, CA 95134
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No.
333-92545) originally filed by Selectica, Inc. (the "Company") with the
Securities and Exchange Commission (the "Commission") on December 10, 1999, as
thereafter amended or supplemented (the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of up to
4,000,000 shares of the Company's Common Stock (the "Shares"). The Shares, which
include an over-allotment option granted by certain stockholders of the Company
to the Underwriters to purchase up to 600,000 additional shares of the Company's
Common Stock, are to be sold to the Underwriters by the Company as described in
the Registration Statement for resale to the public. As your counsel in
connection with this transaction, we have examined the proceedings taken and are
familiar with the proceedings proposed to be taken by you in connection with the
sale and issuance of the Shares.
It is our opinion that the Shares being sold by the Company, when
issued and sold in the manner described in the Registration Statement and in
accordance with the resolutions adopted by the Board of Directors of the
Company, will be legally and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to said
Registration Statement and further consent to the use of our name wherever
appearing in said Registration Statement, including the prospectus constituting
a part thereof, and in any amendment or supplement thereto.
Very truly yours,
/s/ GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
----------------------------------------
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of __________
___, ______ between Selectica, Inc., a Delaware corporation ("the Company"), and
_____________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company has adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers and directors of the
Company to the maximum extent authorized by Section 145 of the Delaware General
Corporation Law, as amended ("Law"); and
WHEREAS, the Bylaws and the Law, by their nonexclusive nature, permit
contracts between the Company and the officers or directors of the Company with
respect to indemnification of such officers or directors; and
WHEREAS, in accordance with the authorization as provided by the Law, the
Company may purchase and maintain a policy or policies of directors' and
officers' liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its officers or directors in the performance of their
obligations to the Company; and
WHEREAS, in recognition of past services and in order to induce Indemnitee
to continue to serve as an officer or director of the Company, the Company has
determined and agreed to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's service as an officer or
director after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee. The Company hereby agrees to hold harmless and
indemnify Indemnitee to the full extent authorized or permitted by the
provisions of the Law, as such may be amended from time to time, and Article
VII, Section 6 of the Bylaws, as such may be amended. In furtherance of the
foregoing indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section l(a) if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or participant in any
Proceeding (as hereinafter defined) other than a Proceeding by or in the right
of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified
against all Expenses (as hereinafter defined), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith
<PAGE> 2
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal Proceeding, had no
reasonable cause to believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee shall be
entitled to the rights of indemnification provided in this Section 1(b) if, by
reason of his Corporate Status, he is, or is threatened to be made, a party to
or participant in any Proceeding brought by or in the right of the Company.
Pursuant to this Section 1(b), Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with such Proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company; provided,
however, that, if applicable law so provides, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company unless and to the extent that the Court of Chancery of the State of
Delaware shall determine that such indemnification may be made.
(c) Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. Additional Indemnity. In addition to, and without regard to any
limitations on, the indemnification provided for in Section 1, the Company shall
and hereby does indemnify and hold harmless Indemnitee against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf if, by reason of his Corporate
Status, he is, or is threatened to be made, a party to or participant in any
Proceeding (including a Proceeding by or in the right of the Company),
including, without limitation, all liability arising out of the negligence or
active or passive wrongdoing of Indemnitee. The only limitation that shall exist
upon the Company's obligations pursuant to this Agreement shall be that the
Company shall not be obligated to make any payment to Indemnitee that is finally
determined (under the procedures, and subject to the presumptions, set forth in
Sections 6 and 7 hereof) to be unlawful under Delaware law.
3. Contribution in the Event of Joint Liability.
(a) Whether or not the indemnification provided in Sections 1 and 2
hereof is available, in respect of any threatened, pending or completed action,
suit or proceeding
2
<PAGE> 3
in which Company is jointly liable with Indemnitee (or would be if joined in
such action, suit or proceeding), Company shall pay, in the first instance, the
entire amount of any judgment or settlement of such action, suit or proceeding
without requiring Indemnitee to contribute to such payment and Company hereby
waives and relinquishes any right of contribution it may have against
Indemnitee. Company shall not enter into any settlement of any action, suit or
proceeding in which Company is jointly liable with Indemnitee (or would be if
joined in such action, suit or proceeding) unless such settlement provides for a
full and final release of all claims asserted against Indemnitee.
(b) Without diminishing or impairing the obligations of the Company
set forth in the preceding subparagraph, if, for any reason, Indemnitee shall
elect or be required to pay all or any portion of any judgment or settlement in
any threatened, pending or completed action, suit or proceeding in which Company
is jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), Company shall contribute to the amount of expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in proportion to the
relative benefits received by the Company and all officers, directors or
employees of the Company other than Indemnitee who are jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding), on the
one hand, and Indemnitee, on the other hand, from the transaction from which
such action, suit or proceeding arose; provided, however, that the proportion
determined on the basis of relative benefit may, to the extent necessary to
conform to law, be further adjusted by reference to the relative fault of
Company and all officers, directors or employees of the Company other than
Indemnitee who are jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), on the one hand, and Indemnitee, on the other hand,
in connection with the events that resulted in such expenses, judgments, fines
or settlement amounts, as well as any other equitable considerations which the
law may require to be considered. The relative fault of Company and all
officers, directors or employees of the Company other than Indemnitee who are
jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), on the one hand, and Indemnitee, on the other hand, shall be
determined by reference to, among other things, the degree to which their
actions were motivated by intent to gain personal profit or advantage, the
degree to which their liability is primary or secondary, and the degree to which
their conduct is active or passive.
(c) Company hereby agrees to fully indemnify and hold Indemnitee
harmless from any claims of contribution which may be brought by officers,
directors or employees of the Company other than Indemnitee who may be jointly
liable with Indemnitee.
4. Indemnification for Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of his
Corporate Status, a witness in any Proceeding to which Indemnitee is not a
party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses. Notwithstanding any other provision of this
Agreement, the Company shall advance all Expenses incurred by or on behalf of
Indemnitee in connection with any Proceeding by reason of Indemnitee's Corporate
Status within ten (10) days
3
<PAGE> 4
after the receipt by the Company of a statement or statements from Indemnitee
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by Indemnitee and shall include or be
preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay
any Expenses advanced if it shall ultimately be determined that Indemnitee is
not entitled to be indemnified against such Expenses. Any advances and
undertakings to repay pursuant to this Section 5 shall be unsecured and interest
free. Notwithstanding the foregoing, the obligation of the Company to advance
Expenses pursuant to this Section 5 shall be subject to the condition that, if,
when and to the extent that the Company determines that Indemnitee would not be
permitted to be indemnified under applicable law, the Company shall be entitled
to be reimbursed, within thirty (30) days of such determination, by Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore
paid; provided, however, that if Indemnitee has commenced or thereafter
commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Company that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and Indemnitee shall not
be required to reimburse the Company for any advance of Expenses until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed).
6. Procedures and Presumptions for Determination of Entitlement to
Indemnification. It is the intent of this Agreement to secure for Indemnitee
rights of indemnity that are as favorable as may be permitted under the law and
public policy of the State of Delaware. Accordingly, the parties agree that the
following procedures and presumptions shall apply in the event of any question
as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification (including, but not limited to, the
advancement of Expenses and contribution by the Company) under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board of
Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
the first sentence of Section 6(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case by one of the following three methods, which shall be at
the election of Indemnitee: (1) by a majority vote of the disinterested
directors, even though less than a quorum, or (2) by independent legal counsel
in a written opinion, or (3) by the stockholders.
(c) If the determination of entitlement to indemnification is to be
made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). The Independent
Counsel shall be selected by
4
<PAGE> 5
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors). Indemnitee or the Company, as the case may be, may, within
10 days after such written notice of selection shall have been given, deliver to
the Company or to Indemnitee, as the case may be, a written objection to such
selection; provided, however, that such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the requirements
of "Independent Counsel" as defined in Section 13 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. Absent a proper and timely objection, the person so selected shall
act as Independent Counsel. If a written objection is made and substantiated,
the Independent Counsel selected may not serve as Independent Counsel unless and
until such objection is withdrawn or a court has determined that such objection
is without merit. If, within 20 days after submission by Indemnitee of a written
request for indemnification pursuant to Section 6(a) hereof, no Independent
Counsel shall have been selected and not objected to, either the Company or
Indemnitee may petition the Court of Chancery of the State of Delaware or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 6(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 6(c), regardless of the
manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(e) Indemnitee shall be deemed to have acted in good faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement. Whether or not the foregoing provisions of this Section 6(e) are
satisfied, it shall in any event be presumed that Indemnitee has at all times
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
5
<PAGE> 6
(f) If the person, persons or entity empowered or selected under
Section 6 to determine whether Indemnitee is entitled to indemnification shall
not have made a determination within thirty (30) days after receipt by the
Company of the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law; provided, however, that such 30 day period may be extended for a reasonable
time, not to exceed an additional fifteen (15) days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 6(g) shall not apply if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 6(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat.
(g) Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Independent Counsel, member of the Board of Directors, or stockholder of the
Company shall act reasonably and in good faith in making a determination under
the Agreement of the Indemnitee's entitlement to indemnification. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee in
so cooperating with the person, persons or entity making such determination
shall be borne by the Company (irrespective of the determination as to
Indemnitee's entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other disposition
short of final judgment may be successful if it permits a party to avoid
expense, delay, distraction, disruption and uncertainty. In the event that any
action, claim or proceeding to which Indemnitee is a party is resolved in any
manner other than by adverse judgment against Indemnitee (including, without
limitation, settlement of such action, claim or proceeding with or without
payment of money or other consideration) it shall be presumed that Indemnitee
has been successful on the merits or otherwise in such action, suit or
proceeding. Anyone seeking to overcome this presumption shall have the burden of
proof and the burden of persuasion, by clear and convincing evidence.
6
<PAGE> 7
7. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section
6 of this Agreement that Indemnitee is not entitled to indemnification under
this Agreement, (ii) advancement of Expenses is not timely made pursuant to
Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to this Agreement within
ten (10) days after receipt by the Company of a written request therefor, or (v)
payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Section 6 of this
Agreement, Indemnitee shall be entitled to an adjudication in an appropriate
court of the State of Delaware, or in any other court of competent jurisdiction,
of his entitlement to such indemnification. Indemnitee shall commence such
proceeding seeking an adjudication within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 7(a). The Company shall not oppose Indemnitee's right to seek any such
adjudication.
(b) In the event that a determination shall have been made pursuant to
Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to this Section 7
shall be conducted in all respects as a de novo trial, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination under
Section 6(b).
(c) If a determination shall have been made pursuant to Section 6(b)
of this Agreement that Indemnitee is entitled to indemnification, the Company
shall be bound by such determination in any judicial proceeding commenced
pursuant to this Section 7, absent a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7, seeks a
judicial adjudication of his rights under, or to recover damages for breach of,
this Agreement, or to recover under any directors' and officers' liability
insurance policies maintained by the Company the Company shall pay on his
behalf, in advance, any and all expenses (of the types described in the
definition of Expenses in Section 13 of this Agreement) actually and reasonably
incurred by him in such judicial adjudication, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advancement of
expenses or insurance recovery.
(e) The Company shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 7 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Company is bound by all the provisions of
this Agreement.
7
<PAGE> 8
8. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification as provided by this Agreement shall
not be deemed exclusive of any other rights to which Indemnitee may at any time
be entitled under applicable law, the certificate of incorporation of the
Company, the Bylaws, any agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement or
of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the
extent that a change in the Law, whether by statute or judicial decision,
permits greater indemnification than would be afforded currently under the
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
9. Exception to Right of Indemnification. Notwithstanding any other
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors of the Company or (b)
such Proceeding is being brought by the Indemnitee to assert, interpret or
enforce his rights under this Agreement.
10. Duration of Agreement. All agreements and obligations of the Company
contained herein shall continue during the period Indemnitee is an officer or
director of the
8
<PAGE> 9
Company (or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise) and shall continue thereafter so long as Indemnitee
shall be subject to any Proceeding (or any proceeding commenced under Section 7
hereof) by reason of his Corporate Status, whether or not he is acting or
serving in any such capacity at the time any liability or expense is incurred
for which indemnification can be provided under this Agreement. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors (including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), assigns, spouses,
heirs, executors and personal and legal representatives. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as an
officer or director of the Company or any other Enterprise at the Company's
request.
11. Security. To the extent requested by the Indemnitee and approved by the
Board of Directors of the Company, the Company may at any time and from time to
time provide security to the Indemnitee for the Company's obligations hereunder
through an irrevocable bank line of credit, funded trust or other collateral.
Any such security, once provided to the Indemnitee, may not be revoked or
released without the prior written consent of the Indemnitee.
12. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on it hereby in order to
induce Indemnitee to serve as an officer or director of the Company, and the
Company acknowledges that Indemnitee is relying upon this Agreement in serving
as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
13. Definitions. For purposes of this Agreement:
(a) "Corporate Status" describes the status of a person who is or was
a director, officer, employee or agent or fiduciary of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the express written
request of the Company.
(b) "Disinterested Director" means a director of the Company who is
not and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(c) "Enterprise" shall mean the Company and any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise of
which Indemnitee is
9
<PAGE> 10
or was serving at the express written request of the Company as a director,
officer, employee, agent or fiduciary.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party (other than with respect
to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(f) "Proceeding" includes any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, investigation,
inquiry, administrative hearing or any other actual, threatened or completed
proceeding, whether brought by or in the right of the Company or otherwise and
whether civil, criminal, administrative or investigative, in which Indemnitee
was, is or will be involved as a party or otherwise, by reason of the fact that
Indemnitee is or was a director of the Company, by reason of any action taken by
him or of any inaction on his part while acting as an officer or director of the
Company, or by reason of the fact that he is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other Enterprise; in each case whether or
not he is acting or serving in any such capacity at the time any liability or
expense is incurred for which indemnification can be provided under this
Agreement; including one pending on or before the date of this Agreement; and
excluding one initiated by an Indemnitee pursuant to Section 7 of this Agreement
to enforce his rights under this Agreement.
14. Severability. If any provision or provisions of this Agreement shall be
held by a court of competent jurisdiction to be invalid, void, illegal or
otherwise unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this Agreement (including
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby and shall remain enforceable to the fullest extent permitted by law; and
(b) to the fullest extent
10
<PAGE> 11
possible, the provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
thereby.
15. Modification and Waiver. No supplement, modification, termination or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Notice By Indemnitee. Indemnitee agrees promptly to notify the Company
in writing upon being served with any summons, citation, subpoena, complaint,
indictment, information or other document relating to any Proceeding or matter
which may be subject to indemnification covered hereunder. The failure to so
notify the Company shall not relieve the Company of any obligation which it may
have to the Indemnitee under this Agreement or otherwise unless and only to the
extent that such failure or delay materially prejudices the Company.
17. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to the address set forth below Indemnitee
signature hereto.
(b) If to the Company, to:
2890 Zanker Road
Suite 101
San Jose, CA 95134
Attention: Chief Financial Officer
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
18. Identical Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute one and the same Agreement. Only one
such counterpart signed by the party against whom enforceability is sought needs
to be produced to evidence the existence of this Agreement.
11
<PAGE> 12
19. Headings. The headings of the paragraphs of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
20. Governing Law. The parties agree that this Agreement shall be governed
by, and construed and enforced in accordance with, the laws of the State of
Delaware without application of the conflict of laws principles thereof.
21. Gender. Use of the masculine pronoun shall be deemed to include usage
of the feminine pronoun where appropriate.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
SELECTICA, INC.
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
----------------------------------------
Name:
-----------------------------------
Address:
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 1
EXHIBIT 10.18
SELECTICA, INC.
MAJOR ACCOUNT LICENSE AGREEMENT
This Agreement, dated as of January 12, 2000 the (the "Effective Date"), is made
and entered into by and between Selectica, Inc. 2890 Zanker Road, Suite 101, San
Jose, California, 95134 ("SELECTICA"), and Samsung SDS Co., LTD. 707-19
Yoksam-Dong, Kangnam-Gu, Seoul, Korea 135-080 ("Customer"). SELECTICA and
Customer agree as follows:
1. DEFINITIONS
Whenever used in this Agreement, the following terms will have the
following specified meanings:
1.1 "AFFILIATE" shall mean any corporation directly or indirectly
controlled by (to the extent of more than 50% of its issued capital entitled to
vote for the election of directors) the Customer or any partnership, joint
venture or other entity directly or indirectly controlled by (to the extent of
more than 50% of the voting power or otherwise having power to control its
general activities) the Customer, but in each case only for so long as such
ownership or control shall continue.
1.2 "DOCUMENTATION" means the documentation specified in Exhibit A
attached hereto and licensed to Customer hereunder, together with any and all
new releases, corrections and updates furnished by SELECTICA to Customer under
this Agreement.
1.3 "SOFTWARE" means the computer software specified in Exhibit A attached
hereto, in object code form, together with any and all Upgrades furnished by
SELECTICA to Customer under this Agreement.
1.4 "UPGRADES" means all releases, updates and corrections of the Software
licensed to Customer hereunder, in object code form, which are published and
generally made commercially available by SELECTICA to its licensees of the
Software with a change in the integer, tenths or hundredths digit of the version
number (e.g., a change from version x.xx to y.xx or x.yx or x.xy). Upgrades
shall not include any release, update or correction that has been customized by
SELECTICA for use by any particular licenses of the Software or which is made by
SELECTICA solely to adopt or reflect the trade dress of any third party.
2. SOFTWARE DELIVERY AND LICENSE
2.1 DELIVERABLES. Upon execution of this agreement, SELECTICA shall
deliver to Customer one reproducible master copy of the Software licensed
hereunder to Customer in object code form, and one copy of the Documentation.
2.2 GRANT. Subject to the terms of this Agreement and payment of all
fees, SELECTICA hereby grants Customer and its Affiliates a nonexclusive,
nontransferable license to:
(a) Install and use the Software specified on Exhibit A hereto on the
Customer's or its Affiliate's servers upon payment to SELECTICA of the
applicable amount as set forth in Exhibit B. The Software shall be used solely
in connection with the configuration, design and sales of Customer's or its
Affiliates products.
(b) Reproduce the Documentation for the Software ordered by Customer
hereunder and/or incorporate all or any portion of the Documentation in training
materials prepared by the Customer, in each case solely for the use of the
Customer and provided that the copyright notices and other proprietary rights
legends of SELECTICA are included on each copy of the Documentation and such
materials.
(c) Reproduce and make one copy of the Software for archival and
backup purposes.
2.3 RESTRICTIONS. Customer shall use the Software and Documentation only
for the purposes specified in section 2.2. In addition, Customer shall not:
(a) modify, change, enhance or prepare derivative works of the
Software or Documentation except as expressly permitted in Section 2.2;
(b) reverse engineer, disassemble or decompose the Software, except
to the extent that such acts may not be prohibited under applicable law;
(c) remove, obscure, or alter any notice of patent, copyright, trade
secret, trademark, or other proprietary rights notices present on any Software
Documentation;
(d) sublicense, sell, lend, rent, lease, or otherwise transfer all or
any portion of the Software or the Documentation to any third party except as
may be permitted in Section 9.4 hereof; and
(e) use the Software or the Documentation to provide services to
third parties, or otherwise use the same on a "service" business" basis,
(f) use the Software, or allow the transfer, transmission, export, or
re-export of the Software or any portion thereof in violation of any export
control laws or regulations administered by the U.S. Commerce Department, OFAC,
or any other government agency.
2.4 PROPRIETARY RIGHTS. The Software Documentation contains valuable
patent, copyright, trade secret, trademark and other proprietary rights of
SELECTICA. Except for the license granted under Section 2.2, SELECTICA reserves
all rights to the Software and Documentation. No title to or ownership of any
Software or proprietary rights related to the Software or Documentation is
transferred to Customer under this Agreement.
2.5 PROTECTION AGAINST UNAUTHORIZED USE. Customer shall promptly notify
SELECTICA of any unauthorized use of the Software or Documentation which comes
to Customer's attention. In the event of any unauthorized use by any of
Customer's employees, agents or representatives, Customer shall use its best
efforts to terminate such unauthorized use and to retrieve any copy of the
Software or Documentation in the possession or control of the person or entity
engaging in such unauthorized use. SELECTICA may, at its option and expense,
participate in any such proceeding and, in such an event, Customer shall provide
such authority, information and assistance related to such proceeding as
SELECTICA may reasonably request.
2.6 RECORDS. Customer shall ensure that each copy it makes of all or any
portion of the Software or the Documentation includes the notice of copyright
or other proprietary rights legends appearing in or on the Software or the
Documentation delivered to Customer by SELECTICA; shall keep accurate records
of the reproduction and location of each copy; and upon request of SELECTICA,
shall provide SELECTICA with complete access to such records and to Customer
facilities, computers and the Software and Documentation for the purpose of
auditing and verifying Customer's compliance with this Agreement.
3. MAINTENANCE
Provided Customer has paid SELECTICA the applicable maintenance fee
specified in Exhibit B, SELECTICA will use reasonable commercial efforts to
provide the maintenance services set forth as described in Exhibit C.
4. COMPENSATION
4.1 LICENSE FEE. Customer will pay SELECTICA the Software License Fee
specified in Exhibit B.
4.2 MAINTENANCE FEE. Customer agrees to pay SELECTICA the Annual
Maintenance Fee in the amount and in accordance with the terms of Exhibit B for
maintenance services for the first twelve (12) month period commencing on the
Effective Date.
4.3 PAYMENT. All fees, charges and other sums payable to SELECTICA under
this Agreement will be due and payable on the dates specified in Exhibit B, or
within thirty (30) days after invoice date if no date is specified in Exhibit B.
All monetary amounts are specified and shall be paid in the lawful currency of
the United States of America. Customer shall pay all amounts due under this
Agreement to
[*] - CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
Page 1 of 8
<PAGE> 2
SELECTICA at the address set forth herein or such other location as SELECTICA
designates in writing. Any amount not paid when due will bear interest at the
rate of one and one half percent (1.5%) per month or, the maximum rate permitted
by law, whichever is less, determined and compounded on a daily basis from the
date due until the date paid. All fees, charges and other sums payable to
SELECTICA under this Agreement do not include any sales, use, excise or other
applicable taxes, tariffs or duties (excluding any applicable federal and state
taxes based on SELECTICA's net income), payment of which shall be the sole
responsibility of Customer.
5. TERM AND TERMINATION
5.1 TERM. The term of this Agreement and the license set forth in Section
2.2 shall commence on the Effective Date and shall end upon the termination of
this Agreement pursuant to Section 5.2 or 5.3.
5.2 TERMINATION BY CUSTOMER. Customer may terminate this Agreement and
any licenses upon thirty (30) days written notice to SELECTICA. Upon
termination, Customer shall return to SELECTICA all copies of the Software and
the documentation in its possession or control, or provide written notice
certifying destruction of such, subject to verification of the same by SELECTICA
to SELECTICA's satisfaction in its sole discretion. Upon any such termination,
SELECTICA shall not be required to refund any fees paid hereunder.
5.3 TERMINATION BY SELECTICA. If Customer defaults in the performance of
or compliance with any of its obligations under this Agreement, and such default
has not been remedied or cured within thirty (30) days after SELECTICA gives
Customer written notice specifying the default (or immediately in the case of a
breach of Section 2), SELECTICA may terminate this Agreement and any licenses.
Termination is not an exclusive remedy and all other remedies will be available
whether or not termination occurs.
5.4 POST TERMINATION. Upon termination of this Agreement, Customer and
its Affiliates shall promptly cease the use of the Software and Documentation
and destroy (and in writing certify such destruction) or return to SELECTICA all
copies of the Software and Documentation then in Customer's or its Affiliates
possession or control.
5.5 SURVIVAL. Sections 2.5, 4, 5.4, 7, 8 and 9 shall survive the
termination of this Agreement.
6. WARRANTIES AND REMEDIES
6.1 PERFORMANCE WARRANTY AND REMEDY. SELECTICA warrants to Customer that
when operated in accordance with the Documentation and other instructions
provided by SELECTICA, the Software will perform substantially in accordance
with the functional specifications set forth in the Documentation for a period
of ninety (90) days after delivery of the Software to the Customer. If the
Software fails to comply with the warranty set forth in this Section 6.1,
SELECTICA will use reasonable commercial efforts to correct the noncompliance
provided that: Customer notifies SELECTICA of the noncompliance within (90)
ninety days after delivery of the Software to the Customer, and SELECTICA is
able to reproduce the noncompliance as communicated by Customer to SELECTICA. If
after the expenditure of reasonable efforts, SELECTICA is unable to correct any
such noncompliance, SELECTICA may refund to Customer all or an equitable portion
of the license fee paid by Customer to SELECTICA for such Software in full
satisfaction of Customer's claims relating to such noncompliance upon Customer's
return of said Software. ANY LIABILITY OF SELECTICA WITH RESPECT TO THE PRODUCT
OR PERFORMANCE THEREOF UNDER ANY WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER
THEORY WILL BE LIMITED EXCLUSIVELY TO PRODUCT REPLACEMENT OR, IF PRODUCT
REPLACEMENT IS INADEQUATE AS A REMEDY OR, IN THE COMPANY'S OPINION, IMPRACTICAL,
TO A REFUND OF THE LICENSE FEE.
6.2 WARRANTY LIMITATIONS. The warranties set forth in Section 5.1 apply
only to the latest release of the Software made available by SELECTICA to
Customer. Such warranties do not apply to any noncompliance of the Software
resulting from misuse, casualty loss, use or combination of the Software with
any products, goods, services or other items furnished by anyone other than
SELECTICA, any modification not made by or for SELECTICA, or any use of the
Software by Customer in contradiction of the terms of this Agreement.
7. INDEMNIFICATION
SELECTICA agrees to hold Customer harmless from liability to third
parties resulting from infringement of any United States patent or copyright or
trade secret by the Software as used within the scope of this Agreement, and to
pay all damages and costs, including reasonable legal fees, which may be
assessed against Customer under any such claim or action. SELECTICA shall be
released from the foregoing obligation unless Customer provides SELECTICA with
(i) written notice within fifteen (15) days of the date Customer first becomes
aware of such a claim or action, or possibility thereof; (ii) sole control and
authority over the defense or settlement thereof; and (iii) proper and full
information and assistance to settle and/or defend any such claim or action.
Without limiting the foregoing, if a final injunction is, or SELECTICA believes,
in its sole discretion, is likely to be, entered prohibiting the use of the
Software by Customer as contemplated herein, SELECTICA will, at its sole option
and expense, either (a) procure for Customer the right to use the infringing
Software as provided herein or (b) replace the infringing Software with
noninfringing, functionally equivalent products, or (c) suitably modify the
infringing Software so that it is not infringing; or (d) in the event (a), (b)
and (c) are not commercially reasonable, terminate the license, accept return of
the infringing Software and refund to Customer an equitable portion of the
license fee paid therefor. Except as specified above, SELECTICA will not be
liable for any costs or expenses incurred without its prior written
authorization. Notwithstanding the foregoing, SELECTICA assumes no liability for
infringement claims with respect to Software (i) not supplied by SELECTICA, (ii)
made in whole or in part in accordance to Customer's specification, (iii) that
is modified after delivery by SELECTICA, (iv) combined with other products,
processes or materials where the alleged infringement relates to such
combination, (v) where Customer continues allegedly infringing activity after
being notified thereof or after being informed of modifications that would have
avoided the alleged infringement, or (vi) where Customer's use of the Software
is not strictly in accordance with this Agreement. THE FOREGOING PROVISIONS OF
THIS SECTION 7 STATE THE ENTIRE LIABILITY AND OBLIGATIONS OF SELECTICA AND THE
EXCLUSIVE REMEDY OF CUSTOMER, WITH RESPECT TO ANY ACTUAL OR ALLEGED INFRINGEMENT
OF ANY PATENT, COPYRIGHT, TRADE SECRET, TRADEMARK OR OTHER INTELLECTUAL PROPERTY
RIGHT BY THE SOFTWARE.
8. DISCLAIMER WARRANTY AND LIMITATION OF LIABILITY
8.1 DISCLAIMER OF WARRANTIES. EXCEPT AS SET FORTH IN SECTION 8.1,
SELECTICA MAKES NO WARRANTIES WHETHER EXPRESSED, IMPLIED OR STATUTORY REGARDING
OR RELATING TO THE SOFTWARE OR THE DOCUMENTATION OR ANY MATERIALS OR SERVICES
FURNISHED OR PROVIDED TO CUSTOMER UNDER THIS AGREEMENT. SELECTICA SPECIFICALLY
DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, AND SATISFACTORY QUALITY WITH RESPECT TO THE SOFTWARE, DOCUMENTATION
AND ANY OTHER MATERIALS AND SERVICES PROVIDED BY SELECTICA HEREUNDER, AND WITH
RESPECT TO THE USE OF THE FOREGOING. FURTHER, SELECTICA DOES NOT WARRANT
RESULTS OF USE OR THAT THE SOFTWARE IS BUG FREE OR THAT THE CUSTOMER'S USE WILL
BE UNINTERRUPTED.
8.2 LIMITATION OF LIABILITY. EXCEPT AS SET FORTH IN SECTION 7, IN NO
EVENT WILL SELECTICA BE LIABLE FOR ANY LOSS OF DATA, COST TO RECOVER, OR FOR
ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND IN
CONNECTION WITH OR ARISING OUT OF THE FURNISHING, PERFORMANCE OR USE OF THE
SOFTWARE, DOCUMENTATION OR ANY MATERIALS OR SERVICES PERFORMED HEREUNDER,
WHETHER ALLEGED AS A BREACH OF CONTRACT OR TORTUOUS CONDUCT, INCLUDING
NEGLIGENCE, EVEN IF SELECTICA HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. IN ADDITION, SELECTICA WILL NOT BE LIABLE FOR ANY DAMAGES CAUSED BY
DELAY IN THE DELIVERY OR FURNISHING OF THE SOFTWARE, DOCUMENTATION, OR OTHER
MATERIALS OR SERVICES. SELECTICA's LIABILITY UNDER THIS AGREEMENT FOR DAMAGES
WILL NOT, IN ANY EVENT, EXCEED THE AMOUNTS PAID BY THE CUSTOMER TO SELECTICA
UNDER
Page 2 of 8
<PAGE> 3
THIS AGREEMENT FOR THE ITEMS GIVING RISE TO SUCH LIABILITY.
9. MISCELLANEOUS
9.1 NONDISCLOSURE OF AGREEMENT. Customer shall not disclose the terms of
this Agreement or the ongoing business relationship initiated by this Agreement
except as required by law or governmental regulation without SELECTICA's prior
written consent, except that customer may disclose the terms of this Agreement
on a confidential basis to Customer's accountants, attorneys, parent
organizations and financial advisors and lenders.
9.2 REFERENCE ACCOUNT. Customer consents to SELECTICA's identification of
Customer as a user of the Software and will cooperate with SELECTICA in
furnishing nonconfidential information about Customer's software use for
informational and promotional use by SELECTICA. No public press releases or
other public forum information exchange about Customer's use of SELECTICA's
Software will be implemented without prior written permission of Customer.
9.3 NOTICES. Any notice or other communication under this Agreement given
by either party to the other will be deemed to be properly given if given in
writing and delivered in person or facsimile, if acknowledged received by
return facsimile or followed within one day by a delivered or mailed copy of
such notice, or if mailed, properly addressed and stamped with the required
postage, to the intended recipient at its address specified in this Agreement.
Either party may from time to time change its address for notices under this
Section by giving the other party notice of the change in accordance with this
Section 9.3.
9.4 ASSIGNMENT. Customer may not assign (directly, by operation of law or
otherwise) this Agreement or any of its rights under this Agreement without the
prior written consent of SELECTICA except that Customer may assign all, but not
part of this Agreement and the Software and Documentation then in its
possession or control to the successor of Customer in a merger or other similar
corporate reorganization outside of the course of Customer's normal business
operations or to the purchaser of substantially all of Customer's assets,
provided such successor or purchaser agrees in writing to comply with the terms
of this Agreement. Subject to the foregoing, this Agreement is binding upon,
inures to the benefit of and is enforceable by the parties and their respective
successors and assigns.
9.5 NONWAIVER. Any failure of either party to insist upon or enforce
performance by the other party of any of the provisions of this Agreement or to
exercise any rights or remedies under this Agreement will not be interpreted or
construed as a waiver or relinquishment of such party's right to assert or rely
upon such provision, right or remedy in that or any other instance.
9.6 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement,
and supersedes any and all prior agreements, between SELECTICA and Customer
relating to the Software, Documentation, services and other items subject to
this Agreement. No amendment of this Agreement will be valid unless set forth
in a written instrument signed by both parties.
9.7 GOVERNING LAW AND ARBITRATION. The rights and obligations of the
parties under this Agreement shall not be governed by the 1980 UN Convention on
Contracts for the International Sale of Goods, but instead shall be governed by
and construed under the laws of the State of California, including its Uniform
Commercial Code, without reference to conflict of laws principles. Any dispute
or claim arising out of or in connection with this Agreement or the
performance, breach, or termination thereof, shall be finally settled by
arbitration in San Jose, California by three arbitrators under the rules of
arbitration of (i) the International Chamber of Commerce, if Customer's address
set forth herein is outside the United States, or (ii) by the American
Arbitration Association if such address is in the United States. Judgment on
the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Notwithstanding the foregoing, either party may apply to
any court of competent jurisdiction for injunctive relief without breach of this
arbitration process.
9.8 LANGUAGE. This Agreement is in the English language only, which
language shall be controlling in all respects, and all versions hereof in any
other language shall not be binding to the parties hereto. All communications
and notices to be made or given pursuant to this Agreement shall be in the
English language.
9.9 APPLICABILITY OF PROVISIONS LIMITING SELECTICA'S LIABILITY. The
provisions of this Agreement under which the liability of SELECTICA is excluded
or limited, shall not apply to the extent that such exclusions or limitations
are declared illegal or void under any applicable laws, unless the illegality
or invalidity is cured under such laws by the fact that the law of California
governs this Agreement.
9.10 FORCE MAJEURE. Neither party will be liable for, or be considered to
be in breach of or default under this Agreement, other than monetary
obligations, as a result of any cause or condition beyond such party's
reasonable control.
9.11 ACCEPTANCE. Neither this Agreement nor any of its EXHIBITS will
become effective until accepted by SELECTICA at its offices in San Jose,
California.
In Witness whereof, the parties have executed this Agreement by their duly
authorized representatives.
SELECTICA, INC.
("SELECTICA")
By: /s/ Stephen Bennion
---------------------------
Name: Stephen Bennion
---------------------------
Title: Vice President/C.F.O.
---------------------------
Date: Jan. 12, 2000
---------------------------
Address 2890 Zanker Road
Suite 101
San Jose, CA 95134
Telephone #: (408) 570-9700
Facsimile #: (408) 570-9705
SamSung SDS CO. LTD.
("Customer")
By: /s/ Joo Wom Park
---------------------------
Name: Joo Wom Park
---------------------------
Title: Managing Director/CFO
---------------------------
Date: Jan. 12, 2000
---------------------------
Address 707-19 Yoksam-Dong Kangham-Gu
Seoul, Korea
135-080
Telephone #: 82-2-3429-2110
Facsimile #: 82-2-3429-2107
Page 3 of 8
<PAGE> 4
EXHIBIT A
DESCRIPTION OF SOFTWARE AND DOCUMENTATION
Description
- ----------------------------------------------------------
ACE Enterprise, including Documentation
1 or 2 CPU
4 CPU
8 CPU
Test and Development
ACE Server Manager
Server Manager
Test and Development
ACE Quoter, including Documentation
1 or 2 CPU
4 CPU
8 CPU
Test and Development
ACE Studio - Number of Licensed users
including Documentation
Page 4 of 8
<PAGE> 5
SELECTICA PRICE LIST - EFFECTIVE JANUARY 1, 2000
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
COMPONENTS PRICE
- ---------------------------------------------------------------
<S> <C>
ACE ENTERPRISE
- ---------------------------------------------------------------
Single or Dual CPU $[*]
- ---------------------------------------------------------------
Quad CPU $[*]
- ---------------------------------------------------------------
Test & Development $[*]
- ---------------------------------------------------------------
- ---------------------------------------------------------------
ACE SERVER MANAGER (REQUIRED FOR MULTIPLE ACE
ENTERPRISE SERVERS
- ---------------------------------------------------------------
Server Manager $[*]
- ---------------------------------------------------------------
Test & Development $[*]
- ---------------------------------------------------------------
- ---------------------------------------------------------------
ACE STUDIO INTEGRATED MODELING
ENVIRONMENT (IME [ILLEGIBLE])
- ---------------------------------------------------------------
Single Seat $[*]
- ---------------------------------------------------------------
- ---------------------------------------------------------------
ACE QUOTE (STOCKS [ILLEGIBLE]
QUOTES)
- ---------------------------------------------------------------
Single or Dual CPU $[*]
- ---------------------------------------------------------------
Quad CPU $[*]
- ---------------------------------------------------------------
Single CPU - Test & Development $[*]
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>
[*] - CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
Page 5 of 8
<PAGE> 6
EXHIBIT B
LICENSE AND MAINTENANCE FEES
1. License Fee. $[*]
The License Fee is due upon the date this Agreement has been executed by both
parties.
2. Annual Maintenance Fee. $[*]
[*] Annual Maintenance fee for the first year for the Software.
Maintenance fees for subsequent years (if Customer elects to continue
maintenance), pursuant to the terms and conditions of Exhibit C, shall be
mutually agreed upon by both parties and payable in advance.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
Page 6 of 8
<PAGE> 7
EXHIBIT C
MAINTENANCE TERMS AND CONDITIONS
The following (the "Attachment") sets forth the terms and conditions of the
maintenance services offered to Customer. Capitalized terms not defined in this
Attachment have the same meaning as in this Agreement.
1. DEFINITIONS.
o "Error" means an error in the Software which significantly degrades
such Software as compared to Selectica's published performance
specifications.
o "Error Correction" means the use of reasonable commercial efforts to
correct Errors.
o "Fix" means the repair or replacement of object or executable code
versions of the Software to remedy an Error.
o "Support Services" means Selectica's support services as described in
Section 2.
o "Updates" means a minor release or enhancement that primarily fixes
bugs and is considered a maintenance release of the Software.
o "Upgrades" means an enhancement, improvement or new version or release
of the Software (that Selectica makes generally available) which
provides additional functionality. Upgrade shall include, but not be
limited to, a new version of the Software that is capable of
executing on a new operating system or platform.
o "Workaround Hours" means a change in the procedures followed or data
supplied by Company to avoid an Error without substantially impairing
Company's use of the Software.
o "Regular Hours" means 8:30AM to 5:00PM Pacific Time on Selectica's
regular business days.
2. SCOPE OF SUPPORT SERVICES. Subject to Section 4 of this Attachment,
Selectica shall use reasonable commercial efforts to provide the
following services for the Software:
o Technical Communication. Maintain a center capable of receiving
information from Company by telephone, electronic mail, fax or postal
mail for support of The Software. Live communication with Selectica
Personnel is limited to Regular Hours. Outside of such regular hours,
Selectica shall have an automated answering service to take messages,
such messages shall be reviewed by Selectica technical personnel at
the beginning of the next business day. Company may only have access
to the Selectica support organization via Company's Authorized Contact
Persons designated above. In case of the Select Advantage support
program, technical communication will be provided beyond regular
business hours via pager support.
o Maintenance Release. From time to time as Selectica deems necessary
or desirable, provide Updates of The Software to Company (free of
charge) that Selectica, in its discretion, makes generally available.
All such Updates provided by Selectica shall be included in the
definition of "Software" and shall be subject to the terms
and conditions of the Agreement.
o Modifications of Software. Selectica shall accommodate requests for
modifications, however, Selectica is under no obligation to
incorporate those requests from Company in future releases of
The Software.
Page 7 of 8
<PAGE> 8
- Error Correction. Selectica shall exercise commercially reasonable
efforts to correct any Error reported by Company in the current
unmodified release of Software
3. CUSTOMER RESPONSIBILITIES. Company is responsible for isolating the
problem, for eliminating other factors as potential causes of the problem
and for providing sufficient information, data and test cases to allow
Selectica to readily reproduce all reported Errors. If Selectica believes
that a problem reported by Company may not be due to an Error in Software,
Selectica will so notify Company.
4. UPGRADES. Upon Company's request, Selectica shall provide copies of any
Upgrades to the Software within a reasonable period following the release
of the Upgrade. An "Upgrade" means a release of a Product which consists of
a new version with substantial enhancements, added functionality or new
features and which is denoted by a change to the number to the left of the
first decimal point (e.g., a change from 2.x to 3.x)
5. EXCLUSIONS. Selectica shall have no obligation to support: (i) altered or
damaged Software or any portion of Software incorporated with or into other
software; (ii) Software that is not the then current release or immediately
Previous Sequential Release which is aged six (6) months or more since the
issuance of the successive release; (iii) Software problems caused by
Company's negligence, abuse or misapplication, use of Software other than
as specified in Selectica user manual or other causes beyond the control of
Selectica; or (iv) Software installed on any hardware that is not supported
by Selectica. Selectica shall have no liability for any changes in
Company's hardware, which may be necessary to use Software due to a
Workaround or maintenance release.
6. DISCLAIMER OF WARRANTY. THESE TERMS AND CONDITIONS DEFINE A SERVICE
ARRANGEMENT AND NOT A SOFTWARE WARRANTY. ALL LICENSED PRODUCTS AND
MATERIALS RELATED THERETO ARE SUBJECT EXCLUSIVELY TO THE WARRANTIES SET
FORTH IN THIS AGREEMENT. THESE MAINTENANCE TERMS AND CONDITIONS DO NOT
CHANGE OR SUPERSEDE ANY TERM OF ANY SUCH AGREEMENT.
Page 8 of 8
<PAGE> 1
EXHIBIT 10.19
SELECTICA, INC.
INTERNATIONAL VALUE ADDED RESELLER AGREEMENT
Agreement #:
------------------------
Effective Date: Jan. 12, 2000
------------------------
THIS AGREEMENT is made and entered into effect as of the date shown above, by
and between Selectica, Inc. ("SELECTICA"), with its principal offices at 2880
Zanker Road, Suite 101, San Jose, CA 95134.
and Company ("VAR"): SAMSUNG SDS CO., LTD.
----------------------------------------
with its principal offices located at 707-19 Yoksam-Dong, Kangnam-Go
----------------------------------------
Seoul, Korea, 135-080
----------------------------------------
Telephone Number: 82-2-3429-3425
----------------------------------------
Fax Number: 82-2-3429-411
----------------------------------------
Company Contact Name: Weon K. Lee
----------------------------------------
Company Contact Email Address: [email protected]
----------------------------------------
RECITALS
The parties to this Agreement wish to enter into a non-exclusive,
non-transferable agreement pursuant to which VAR will purchase and/or market
certain of the proprietary Products ("the Products") developed and manufactured
by SELECTICA. Therefore, in consideration of the mutual covenants and
conditions contained in this Agreement, SELECTICA and VAR agree as follows:
1. APPOINTMENT
1.1 SELECTICA appoints VAR, and VAR accepts appointment as an authorized,
non-exclusive Value Added Reseller of the Products listed on EXHIBIT B hereto
(the "Products"). This appointment authorizes VAR to distribute Products
directly to end-user customers only within the Territory. For purposes of this
Agreement, "Territory" shall mean Korea. VAR must obtain prior written consent
from Selectica for any distribution outside of the Territory. VAR can recommend
resellers in Korea to resell Selectica products. Selectica may approve a
reseller if it meets certain criteria (e.g., such potential resellers do not
represent competitive products/companies and have the expertise to resell and
support Selectica products). If Selectica approves such reseller, VAR may
execute a reseller agreement directly with the reseller with terms and
conditions no less restrictive than those contained in this Agreement. VAR may
not execute any reseller agreements with any reseller not previously approved in
writing by Selectica.
1.2 Although SELECTICA may, from time to time, publish suggested list prices
of the Products, VAR has the right to determine its own resale prices
unilaterally. No SELECTICA representative has any authority to require VAR to
charge a particular resale price for the Products or to otherwise inhibit VAR's
pricing discretion. VAR will promptly report any attempt to do so to
SELECTICA's management in writing.
1.3 SELECTICA reserves the right, during the term of this Agreement and
thereafter, to market products that are the same as or similar to those products
that are the subject of this Agreement, in the same geographical areas serviced
by VAR, either directly or indirectly through independent agents, dealers,
developers, distributors, value added resellers, system integrators and Original
Equipment Manufacturers' without obligation or liability to VAR.
2. LICENSE GRANT
As part of the appointment under Section 1.1, and subject to the terms and
conditions of this Agreement, Selectica grants VAR (i) a nonexclusive,
non-transferable license to use and distribute internally the Products for
internal testing and development purposes and for demonstration and support of
End Users (the "End-User License");
[*] - CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE> 2
(ii) an exclusive, non-transferable license to distribute and sub-license the
Products directly or indirectly through VAR's distribution channel to End Users
in the Territory pursuant to the terms and conditions of an End User license
agreement that contains terms and conditions substantially similar to those set
forth in the End Use Agreement which is attached as Exhibit C (hereinafter the
"End User Agreement").
3. FEES AND PAYMENT TERMS
3.1 Products Fees. VAR shall pay Selectica, for the Products that VAR is
purchasing pursuant to this Agreement the amount set forth in Exhibit B. Such
fees for the purchase of the Products set forth in Exhibit B shall be
non-refundable.
3.2 Internal Use License. VAR shall pay Selectica, for each of the Products
that it uses or distributes for internal purposes within the scope of the
rights set forth in Section 5(a)(i) of this Agreement, the amounts set forth in
Exhibit G.
3.3 Payment Terms. The payments to Selectica from VAR for the Products listed
on Exhibit B and the Internal Use License shall be paid upon the execution of
this Agreement.
3.4 Taxes, Fees, and Documentation. VAR agrees to pay, and to indemnify and
hold Selectica harmless from, any sales, use, excise, import or export, value
added or similar tax, not based on Selectica's net income, as well as the
collection or withholding thereof, including penalties and interest, and all
government permit or license fees and all customs, duty, tariff and similar
fees levied upon the delivery of the Products and other deliverables, and any
costs associated with the collection of any of the foregoing items. VAR shall
be responsible for obtaining, at its expense, all required import licenses,
permits or other governmental orders. If a resale certificate or other
certificate, document or other evidence of exemption or payment or withholding
of taxes by VAR is required in order to exempt the distribution or licensing of
the Products from any such liability or to enable Selectica to claim any tax
exemption, credit, or other benefit, VAR will promptly furnish such certificate
or document to Selectica.
4. VAR RESPONSIBILITIES
In consideration for being appointed an authorized VAR of the Products, VAR
assumes the following responsibilities:
4.1 Maintain a sufficient number of trained and knowledgeable sales personnel
who are able to explain in detail the differences between the Products and
competitive products, and who can effectively market the Products and provide
support for the Products to all of the VAR's end-user customers.
4.2 Make reasonable efforts to maintain at lest one SELECTICA certified
technical resource on staff at all times.
4.3 Upon end-user customer request at the point of sale, explain and
demonstrate the Products and instruct the customer on the setup and
installation.
4.4 Display, demonstrate, and represent the Products fairly and make no
representations concerning SELECTICA or its products that are false, misleading
or inconsistent with those representations set forth in the promotional or
other materials that are supplied by SELECTICA.
4.5 Assure that the Products are sold to end-user customers only in complete
and appropriate packaging which includes an SELECTICA warranty and limitation
of liability statements, license agreement and/or other materials as specified
by SELECTICA. VAR shall require each End-User to execute the End User Agreement
attached hereto as Exhibit C.
4.6 Promptly report to SELECTICA all suspected defects in the Products.
4.7 Prevent the unauthorized reverse engineering, decompilation and reverse
analysis of the products by VAR personnel and agents and use reasonable efforts
to prevent unauthorized reverse engineering decompilation and
2
<PAGE> 3
reverse analysis by VAR customers. VAR agrees that if, for any reason, it comes
into possession of any source code, or portion thereof, for any Selectica
product, not generally provided by Selectica as a part of the Software Product,
it will immediately deliver all copies of such source code to Selectica.
4.8 Provide SELECTICA with monthly sales history and quarterly sales forecasts
of the Products.
4.9 Employ the level of energy, skills, and resources necessary to market the
Products actively.
4.10 Pay SELECTICA the fees set forth in Exhibit B to this Agreement and
maintain a satisfactory overall credit rating.
4.11 Comply with all applicable laws and regulations in performing under this
Agreement.
4.12 In connection with any VAR proposals or agreements to supply the Products
or User Documentation to governments (or agencies thereof), VAR will take all
reasonable steps in making such proposals and agreements to ensure that
Selectica's Intellectual Property Rights in such Products and User Documentation
receive the maximum protection available from such governments for commercial
computer software and related documentation developed at private expense. The
provisions of this Section shall not be construed to expand the scope of VAR's
rights set forth in Section 5(a), nor to require VAR to seek or obtain
registrations of any kind whatsoever, in any portion of the Exclusive or
Nonexclusive Territories, to protect the Intellectual Property Rights of
Selectica.
5. SUPPORT AND MAINTENANCE
5.1 Support: Pursuant to VAR being in compliance with the requirements as
detailed in Section 4, SELECTICA shall, during the term of this Agreement and
during SELECTICA's support business hours (5:00 AM - 5:00 PM PST), provide
technical support through appropriate communications mechanisms (telephone, fax,
electronic mail, or web services) to the designated support contact or backup
support contact of the VAR. Both designated support contact and backup support
contact are required to be trained by SELECTICA or its designee and maintain
certification as SELECTICA Certified Developer. VAR will submit in writing the
names of designated and backup support contacts. VAR will receive free of charge
technical information on the development of solutions, software problem
analysis, and responses to technical issues as they pertain to the operation of
SELECTICA's Products.
5.2 Maintenance to VAR: VAR will receive minor upgrades, updates, software
problem fixes, periodic reports on software problems, and other maintenance
support for the products purchased for the Internal Use License under the VAR
program as long as VAR is current with maintenance fees. VAR shall pay a minimum
annual maintenance fee at an amount as shown in EXHIBIT A for all term years
except year one. All maintenance fees received from VAR (not directly from
end-user) for VAR's end-user customers' annual maintenance shall be credited
against VAR's annual program maintenance fee. The annual program maintenance fee
only covers the development system(s) associated with the VAR Program as listed
in EXHIBIT A. Any additional products purchased by VAR for internal use will be
charged a separate maintenance fee as defined in Exhibit A. Such maintenance
fees will be included with each product order, prorated based on the upcoming
anniversary date of this Agreement. Renewal maintenance fees will be billed
annually on the anniversary date of this Agreement. The maintenance fees must be
kept current in order to remain in the VAR Program.
5.3 Maintenance to End User: VAR shall pay SELECTICA certain maintenance fees as
defined in EXHIBIT A for all products purchased by end-users where VAR is
providing first line support. VAR is required to provide first level support for
year one for each customer, at a minimum. SELECTICA agrees to provide second
line support to VAR provided that VAR is current with respect to maintenance
fees as defined in section 5.2. VAR will receive minor upgrades, updates,
software problem fixes, periodic reports on software problems, and other
maintenance support for the products that VAR is then entitled to pass on to
end-users. The annual maintenance fee covers only the Products VAR is licensed
to resell. First year maintenance fees are required for each customer and are
paid at the time of initial order. Subsequent renewal will be on each
anniversary of the maintenance effective date. The maintenance effective date is
defined as the date that SELECTICA ships product to VAR for a given customer.
For year two and onward, SELECTICA agrees to contract with end-user for
maintenance and support, if requested.
3
<PAGE> 4
by VAR or end-user. In such cases, end-user will be billed SELECTICA's standard
maintenance and support fee as detailed in EXHIBIT A. Selectica shall have no
obligation to support: (i) altered or damaged Software or any portion of
Software incorporated with or into other software; (ii) Software that is not the
then current release or immediately previous sequential release which is aged
six (6) months or more since the issuance of the successive release; (iii)
Software problems caused by Company's negligence, abuse or misapplication, use
of Software other than as specified in Selectica user manual or other causes
beyond the control of Selectica; or (iv) Software installed on any hardware that
is not supported by Selectica. Selectica shall have no liability for any changes
in Company's hardware, which may be necessary to use Software due to a
workaround or maintenance release.
5.4 Updates and Maintenance Fixes: During the Agreement's term, SELECTICA will
furnish to VAR within a reasonable time after publication one copy of updates
and corrections to the Products VAR is authorized to resell. Such corrections
are collectively referred to herein as "Updates and/or Maintenance Fixes".
Updates and Maintenance Fixes do not include any releases or updates with a
change in the version number to the left of the decimal point or any release,
update or upgrade that has been customized for use by any particular user or
which is made solely to adopt or reflect trade dress of any third party.
5.5 Product Exchange: VAR shall be entitled to exchange any of the Products it
is purchasing pursuant to this Agreement to the other Products in this
Agreement.
6. TERM AND RENEWAL
6.1 The term of this Agreement shall be a single Contract Period commencing on
the Effective Date set forth above and terminating one (1) year thereafter,
unless renewed as provided below or unless terminated sooner in accordance with
the provisions of this Agreement.
6.2 This appointment as a VAR for SELECTICA's Products shall be automatically
renewable for successive twelve-month (12-month) periods unless written notice
by either party of its intent not to renew at least thirty (30) days before the
expiration date.
7. TERMINATION
7.1 If SELECTICA in its judgment finds VAR deficient in meeting VAR's
responsibilities or obligations under the terms of this Agreement, SELECTICA
will provide written notice of such deficiencies and establish a reasonable
period of time, not to exceed thirty (30) days, in which VAR must remedy such
deficiencies. In the event VAR does not correct the deficiencies, SELECTICA can,
at its option, terminate this Agreement. No waiver by SELECTICA of any
deficiencies in one or more instances shall constitute a waiver of SELECTICA's
right to terminate this Agreement in a subsequent instance.
7.2 Notwithstanding any other provisions of this agreement, and without
requirement for SELECTICA to reimburse VAR for any fees, SELECTICA may terminate
this Agreement immediately upon delivery of Notice of Termination to VAR if the
VAR:
a. Transfers control or ownership of all or part of the VAR, whether
directly, indirectly, voluntarily or involuntarily;
b. Submits to SELECTICA at any time prior to or during the term of this
Agreement a report, financial statement, tax return, or other information
in which VAR knowingly submits false or misleading information.
c. Fails or refuses to comply with the provisions of this Agreement, even
if such failures or refusals are corrected after notice thereof is
delivered to VAR; or
d. Sells the Products to non-end-user customers, or otherwise violates
the Grant of Rights in Section 1.
7.3 In the event of termination or expiration of this Agreement due to VAR's
default, VAR shall immediately discontinue use of SELECTICA's name and marks,
and shall within thirty (30) days of the effective termination
4
<PAGE> 5
expiration date settle all accounts, pay all outstanding bills, and return to
SELECTICA all confidential and proprietary information obtained from SELECTICA
pursuant to this Agreement.
7.4 In the event of a material default under this Agreement by SELECTICA, VAR
will provide written notice of such default and establish a reasonable period
of time, not to exceed thirty (30) days, in which VAR must remedy such
deficiencies. In the event VAR does not correct the deficiencies, VAR can, at
its option, terminate this Agreement.
8. ANNOUNCEMENT
8.1 VAR agrees that upon both parties signatures below, SELECTICA may
publicize the relationship established by this Agreement.
9. INDEMNIFICATION
9.1 Except as limited in Section 9.2, SELECTICA shall defend at its expense any
action brought against VAR to the extent the action is based on a claim that
use of any Products furnished to VAR under this Agreement infringes any United
States patent or copyright. SELECTICA will indemnify VAR against any costs,
damages or fees finally awarded against VAR in such an action, provided that
VAR notifies SELECTICA promptly, in writing, of the claim, and grants SELECTICA
sole authority to defend or settle the claim, and also provides SELECTICA with
all reasonable information, assistance, and authority necessary to enable
SELECTICA to do so. SELECTICA shall have the right to substitute a new Product
that is non-infringing provided that the performance of the new product is
substantially equivalent to the licensed Product that was originally delivered
to VAR.
9.2 SELECTICA shall have no liability under Section 9.1 for claims and/or
actions based on: (a) the use of other than the most current version of the
Products, if the claim or action could have been avoided by use of the most
current version of the Products; (b) the purchase or obtaining of the Products
from a dealer, distributor, or VAR not authorized by SELECTICA; or (c) the
modification of the Products by the VAR or a third party.
9.3 The indemnification by SELECTICA in Section 9.1 above shall not extend to
claims that arise solely from the work that VAR performs in integrating the
Products with other Products or in the marketing of the Products pursuant to
this Agreement. VAR agrees that, as to the content of such work VAR, at its own
expense, shall indemnify, defend and hold SELECTICA harmless from and against
any and all awards, judgments, expenses, damages, costs (including reasonable
attorney's fees) and losses resulting from any claim, action, suit or
proceeding threatened or instituted against SELECTICA based on a claim that the
integrated and combined Products and the use thereof, constitutes an
infringement upon or misappropriation of any patent, copyright, trade secret or
other proprietary right. Except with the written consent of SELECTICA, VAR will
not consent to the entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof, the giving to SELECTICA a
full and final release from all liability or which limits or adversely affects
the rights of SELECTICA to carry on or conducts its business, then or into the
future.
9.4 VAR agrees to indemnify and hold Selectica harmless from any claims,
suits, proceedings, losses, liabilities, damages, costs and expenses
(inclusive of Selectica's reasonable attorneys' fees) made against or incurred
by Selectica as a result of (i) negligence or misrepresentation by VAR or its
representatives, (ii) any error or omission on the part of VAR or
representatives of VAR or (iii) any action by VAR which affects Selectica's
Intellectual Property Rights (iv) any claims for compensation asserted by VAR's
employees. VAR shall be solely responsible for, and shall indemnify and hold
Selectica harmless from, any claims, warranties or representations made by VAR
or VAR's employees or agents. VAR will defend, indemnify, and hold harmless
Selectica and its successors, agents, officers, directors, and employees from
and against any violation of any laws or regulations by VAR or any of its
agents, officers, directors, employees, or customers.
10. WARRANTY
10.1 SELECTICA warrants to VAR that each SELECTICA Product purchased from
SELECTICA or from a dealer, distributor, or VAR authorized by SELECTICA will be
free from material errors or defects in material and
5
<PAGE> 6
workmanship and will perform in substantial compliance with SELECTICA's
published specifications for ninety (90) days after shipment of the Products by
SELECTICA to VAR. This limited warranty is contingent upon proper use of the
Products and does not cover any Products that have been modified or misused.
10.2 SELECTICA shall accept the return from VAR of any Products not meeting the
requirements of Section 10.1 if it is returned to SELECTICA within the warranty
period with a written description of the claimed defect, along with information
regarding its purchase, including dated proof of purchase, provided VAR obtains
a prior Return Material Authorization (RMA) number from SELECTICA for the return
and ships the return to the destination specified by SELECTICA, freight prepaid,
with the RMA number clearly marked on the outside of the shipping container. At
its option SELECTICA will either repair or replace the defective Products and
return it to VAR with freight charges, shipping, handling, duty, and taxes
prepaid, or apply the price paid therefor by VAR as a credit to future purchases
of Products.
10.3 A SELECTICA warranty statement and limitation of liability statements is
provided with each SELECTICA product intended for sale to end-user customers.
VAR is not authorized to make any other warranty commitment, whether written or
verbal, on SELECTICA's behalf. A copy of the applicable end-user warranty or
limitation of liability statements will be furnished to VAR separately.
10.4 SELECTICA's Disclaimer of Warranty. THE LICENSED SELECTICA PRODUCTS AND
RELATED DOCUMENTATION ARE PROVIDED "AS IS". SELECTICA MAKES AND VAR AND VAR'S
END-USER CUSTOMERS RECEIVE NO WARRANTIES ON THE LICENSED SELECTICA PRODUCTS AND
RELATED DOCUMENTATION, EXPRESS, IMPLIED, STATUTORY, OR IN ANY OTHER PROVISION OF
THIS AGREEMENT OR COMMUNICATION WITH VAR AND VAR'S END-USER CUSTOMERS. SELECTICA
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. SELECTICA DOES NOT WARRANTY THAT THE OPERATION OF THE
LICENSED SELECTICA PRODUCTS WILL BE UNINTERRUPTED OR ERROR FREE.
10.5 Notwithstanding anything to the contrary contained herein, except as
expressly set forth, SELECTICA shall not, under any circumstances, be liable to
VAR or VAR's end-user customers for consequential, incidental, or special
damages, including but not limited to lost profits, even if SELECTICA has been
apprised of the likelihood of such damages occurring.
11. TRADEMARKS AND RELATED MATTERS
11.1 VAR may refer to itself during the term of this Agreement as a "Selectica
Certified Value Added Reseller", solely in connection with the Products
purchased under this Agreement.
11.2 VAR agrees that it will not use the terms "SELECTICA," "SELECTICA, INC.",
"SELECTICA INTERNET SELLING SYSTEM", "SELECTICA ISS", or the SELECTICA logo, or
any similar terms or logos as a trading designation or in any other way, except
to indicate that VAR is authorized by SELECTICA to market the Products.
11.3 VAR agrees that it will not remove, conceal, or change any trademark,
service mark, trade name, or logo from the Products or associated documentation
provided by SELECTICA. VAR agrees that it will not affix any trademarks or
service marks of SELECTICA or any similar terms to any other goods, use the same
in connection with any services, or use the same in VAR's business or company
name.
11.4 VAR agrees to notify SELECTICA promptly of any use of SELECTICA's names or
marks or any similar marks by any third party.
11.5 Unless prior written consent is obtained from SELECTICA, VAR shall not
copy or modify any manuals, documentation or other materials provided by
SELECTICA under this Agreement.
11.6 The permission granted relative to all SELECTICA trademarks shall terminate
with the expiration or termination of this Agreement. Upon such expiration or
termination, VAR shall immediately cease referring to
6
<PAGE> 7
itself as an Authorized Selectica Value Added Reseller and shall immediately
cease using trade names and trademarks of SELECTICA.
12. YEAR 2000 COMPLIANCE WARRANTY
SELECTICA represents and warrants that the Software as delivered will operate
prior to, during, and after, the calendar year 2000 A.D. without error relating
to date data, specifically including but not limited to any error relating to
calculations, sorting, interpretation, processing or acceptance of date data
which represents or references different centuries or more than one century,
provided that all hardware, firmware and other software used in conjunction with
the Software properly exchanges accurate and properly formatted date data with
the Software. The Year 2000 Compliance Warranty set forth in this Section shall
begin as of the date of this Agreement and end on the date after January 1,
2000, subsequent to which the Software has operated without a breach of the Year
2000 Compliance Warranty for a consecutive six month period (the "Year 2000
Warranty Period"). If the Software fails to comply with the warranty set forth
in this Section 12. SELECTICA will use reasonable commercial efforts to correct
the noncompliance, provided that VAR notifies SELECTICA of the noncompliance
within the Year 2000 Warranty Period, and SELECTICA is able to reproduce the
noncompliance as communicated by VAR to SELECTICA. If after the expenditure of
reasonable efforts, SELECTICA is unable to correct any such noncompliance,
SELECTICA may refund to VAR all or an equitable portion of the license fee paid
by VAR to SELECTICA for such Software in full satisfaction of VAR's claims
relating to such noncompliance upon VAR's return of said Software.
13. GENERAL
13.1 This Agreement is not assignable by VAR without the prior written consent
of SELECTICA. Any attempt to assign any of the rights, duties, or obligations of
this Agreement without such consent is void.
13.2 VAR and SELECTICA hereby agree that any Confidential Information about the
Products or relating to VAR's or SELECTICA's product development or business
activities received under this Agreement, whether for internal use or otherwise,
and whether provided verbally, in writing, or in any other medium, is and shall
be treated as the confidential property of VAR or SELECTICA, as the case may be
(except such information as is previously known to VAR or SELECTICA without an
obligation of confidentiality or is publicly disclosed by the parties seeking to
maintain its confidentiality). VAR and SELECTICA will notify each other by
identifying and marking all materials as Company Confidential or Confidential
Information. VAR and SELECTICA shall hold such Confidential Information in
strictest confidence and shall exercise and shall obligate all of its employees
to exercise a high degree of care to safeguard the confidentiality of the
Confidential Information during the term of this Agreement and three (3) years
thereafter.
13.3 The entire Agreement between the parties is incorporated in this Agreement
and its exhibits, and it supersedes and merges all prior discussions and
agreements between the parties relating to the subject matter hereof. This
Agreement can be modified only by a written amendment duly signed by persons
authorized to sign agreements on behalf of VAR and SELECTICA and shall not be
supplemented or modified by any course of dealing or trade usage. Variance from
or addition to the terms and conditions of this Agreement in any order or other
written notification from VAR will be of no effect. The term "Agreement" as
used herein includes any applicable exhibits or future written amendments made
in accordance herewith.
13.4 Nothing contained in this Agreement shall be construed as creating a joint
venture, partnership or employment relationship between SELECTICA and VAR, it
being understood that SELECTICA and VAR are independent contractors vis-a-vis
one another. Except as specified herein, no party shall have the right, power or
implied authority to create any obligation or duty, express or implied, on
behalf of any other party hereto.
13.5 Any obligations or duties that by their nature extend beyond the expiration
or termination of this Agreement shall survive any expiration or termination of
this Agreement and shall remain in effect.
7
<PAGE> 8
13.6 If any provision of this Agreement is held to be invalid, illegal, or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby, and VAR shall
negotiate in good faith with SELECTICA to amend this Agreement in order to make
such provision enforceable.
13.7 Except for the obligation to pay money properly due and owing, neither
party shall be responsible for damages or be deemed in default by reason of
delays in performance due to strikes, lockouts, accidents, Acts of God, or
other causes beyond the party's reasonable control.
13.8 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of California, without regard to conflict of laws
principles or the U.N. Convention on Contracts for the International Sale of
Goods. Any dispute or claim arising out of or in relation to this Agreement, or
the interpretation, making, performance, breach or termination thereof, shall
be finally settled by binding arbitration under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce as presently in force
("Rules") and by three (3) arbitrators appointed in accordance with said Rules.
Judgment on the award rendered may be entered in any court having jurisdiction
thereof. The place of arbitration shall be San Francisco, California, U.S.A.
Any monetary award shall be in U.S. dollars and the arbitration shall be
conducted in the English language. The parties may apply to any court of
competent jurisdiction for temporary or permanent injunctive relief, without
breach of this Section 12.8 and without any abridgment of the powers of the
arbitrator.
13.9 For purposes of this Agreement, and for all notices and correspondence
hereunder, the addresses of the respective parties have been set out at the
beginning of this Agreement, and no change of address shall be binding upon the
other party until written notice thereof is received by such party at the
address shown herein. All notices shall be effective upon receipt if delivered
by courier service or sent by telegram, and five days after mailing if sent by
registered mail.
13.10 Neither this Agreement nor any of its exhibits will become effective
until accepted by SELECTICA at its offices in San Jose, California.
8
<PAGE> 9
VAR acknowledges that VAR has read this Agreement, understands it, and agrees
to be bound by its terms and conditions. Further, VAR agrees that this
statement is the complete and exclusive statement of the agreement between the
parties, and that this statement supersedes any prior agreements, verbal or
written, and any other communications between the parties relating to the
subject matter of this Agreement.
In Witness whereof, the parties have executed this Agreement by their duly
authorized representatives.
SELECTICA, INC. SAMSUNG SDS CO., LTD.
("SELECTICA") ("VAR")
By: /s/ STEPHEN BENNION By: /s/ JOO WON PARK
------------------------- -------------------------
Print name: Stephen Bennion Print name: Joo Won Park
------------------------- -------------------------
Title: Vice President/CFO Title: Managing Director/CFO
------------------------- -------------------------
Date: Jan. 12, 2000 Date: Jan. 12, 2000
------------------------- -------------------------
9
<PAGE> 10
EXHIBIT A
VAR PROGRAM AND NON-REFUNDABLE FEES
I. DEVELOPMENT SYSTEM
VAR agrees to pay the following non-refundable program fee.
VAR PROGRAM NAME NON-REFUNDABLE FEE
CERTIFIED INTERNET SELLING SYSTEM VAR $0.0
a) ACE Studio Integrated Modeling Environment (One User) Quantity 1
b) ACE Enterprise - Dual CPU Server Quantity 1
c) ACE Quoter - Dual CPU Server Quantity 1
II. CONSULTING SERVICES
VAR may purchase up to 10 days of SELECTICA consulting services at a 20%
discount from the current published prices, subject to scheduling and
availability of consultants for a period of ninety (90) days from the Effective
Date of this Agreement. VAR will be responsible for any travel expenses
incurred.
Selectica agrees not to exceed the following expenses for Selectica consultants
working onsite on VAR projects:
Expense Items Amount
------------- ------
Air Fare $[*]/person
Hotel $[*]/day/person
Food $[*]/day/person
Communication $[*]/day/person
Taxi $[*]/day/person
Total $[*]/week/person
III. TRAINING
VAR must have, at a minimum, one employee successfully complete the training
course(s) for the selected program(s) within sixty (60) days of the effective
date of the Agreement. Selectica will provide training for four (4) of VAR's
employees free of charge subsequent to each new release of the Products.
Selectica agrees to also conduct presales training to the VAR sales team upon
major product releases. Such training shall take place at Selectica's premises
and shall be at a time mutually agreed upon.
VAR shall receive a 20% discount from current published prices on all
additional public training courses which VAR attends. The VAR will receive a
20% discount for customer students enrolled in SELECTICA Training by VAR.
Classes are subject to availability.
IV. LICENSING ADDITIONAL OR NEW PLATFORMS, DATABASES OR OPERATING SYSTEMS
From time to time SELECTICA may add new platforms, databases and/or operating
systems. SELECTICA may choose to make these new product offerings available to
VAR for an additional fee per platform, database and/or operating system.
[*] - CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
10
<PAGE> 11
V. VAR MAINTENANCE FEES
VAR will be charged a minimum annual maintenance fee of $[*] per VAR program
for all term years except year one. Year one maintenance is included in with
the initial non-refundable program fee. Renewal maintenance fees will be
billed annually on the anniversary date of this Agreement. The maintenance fees
must be kept current in order to remain in the Program.
VAR shall pay a maintenance fee of [*]% of the list price of any additional
products purchased by VAR.
VI. END-USER MAINTENANCE FEES
VAR shall pay SELECTICA a maintenance fee equal to [*]% of the suggested retail
price of the deployment licenses purchased by end-user customers.
In cases where end-user customers or VAR prefers to contract directly with
SELECTICA for maintenance following year one, such customers shall pay
SELECTICA's standard maintenance fee of [*]% of the suggested retail price for
deployment licenses.
[*] - CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
11
<PAGE> 12
EXHIBIT B
PURCHASED PRODUCTS
<TABLE>
<CAPTION>
ACE MODULES LIST UNIT PRICE DISC. UNIT PRICE NUMBER OF UNITS TOTAL COST
<S> <C> <C> <C> <C> <C> <C>
ENTERPRISE
2 CPU $ [*] $ [*] 13 $ [*]
4 CPU $ [*] $ [*] 4 $ [*]
TEST & DEV. $ [*] $ [*] 4 $ [*]
QUOTER
2 CPU $ [*] $ [*] 13 $ [*]
4 CPU $ [*] $ [*] 2 $ [*]
TEST & DEV. $ [*] $ [*] 4 $ [*]
SERVER MGR $ [*] $ [*] 4 $ [*]
TEST & DEV. $ [*] $ [*] 2 $ [*]
STUDIO $ [*] $ [*] 27 $ [*]
$ [*]
TOTAL DISCOUNTED $ [*]
PURCHASE PRICE
(DUE UPON
SIGNING)
</TABLE>
[*] - CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
12
<PAGE> 1
EXHIBIT 10.20
SELECTICA, INC.
STOCK PURCHASE AGREEMENT
JANUARY 31, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
1. Purchase and Sale of Stock............................................................... 1
1.1 Sale and Issuance of Stock...................................................... 1
1.2 The Closing..................................................................... 1
2. Representations and Warranties of the Company............................................ 1
2.1 Organization and Good Standing.................................................. 1
2.2 Authorization................................................................... 2
2.3 Valid Issuance of Stock......................................................... 2
2.4 Title to Property and Assets.................................................... 2
2.5 Compliance with Other Documents................................................. 2
2.6 Registration Statement.......................................................... 2
2.8 Litigation...................................................................... 3
2.9 Intellectual Property........................................................... 3
2.10 Financial Statements........................................................... 3
2.11 Changes........................................................................ 3
2.12 Taxes.......................................................................... 3
3. Representations and Warranties of the Investor........................................... 3
3.1 Authorization................................................................... 3
3.2 Investigation................................................................... 4
3.3 Accredited Investor............................................................. 4
3.4 Purchase Entirely for Own Account............................................... 4
3.5 Restricted Securities........................................................... 4
4. Conditions to the Investor's Obligation at Closing....................................... 4
4.1 Representations and Warranties.................................................. 4
4.2 Securities Laws................................................................. 4
4.3 Authorizations.................................................................. 4
4.5 Initial Public Offering of Common Stock......................................... 5
5. Conditions to the Company's Obligations at Closing....................................... 5
5.1 Representations and Warranties.................................................. 5
5.2 Securities Laws................................................................. 5
5.4 Authorizations.................................................................. 5
5.5 Initial Public Offering of Common Stock......................................... 5
5.6 Payment of Purchase Price....................................................... 5
5.7 Lock-Up Agreement............................................................... 5
6. Covenants of the Company and the Investor................................................ 5
6.1 Agreement Not to Transfer....................................................... 5
6.2 Market Stand-Off................................................................ 6
6.5 Registration of Stock........................................................... 6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
7. Miscellaneous............................................................................ 6
7.1 Governing Law................................................................... 6
7.2 Survival; Additional Securities................................................. 6
7.3 Successors and Assigns.......................................................... 7
7.4 Entire Agreement................................................................ 7
7.5 Notices......................................................................... 7
7.6 Amendments and Waivers.......................................................... 7
7.7 Legal Fees...................................................................... 7
7.8 Expenses........................................................................ 7
7.9 Titles and Subtitles............................................................ 7
7.10 Counterparts................................................................... 7
7.11 Severability................................................................... 7
7.13 Confidentiality................................................................ 8
</TABLE>
ii
<PAGE> 4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of
the 31st day of January, 2000, by and between Selectica, Inc., a Delaware
corporation (the "Company") and Samsung SDS (the "Investor").
WHEREAS, the Investor has indicated a desire to purchase
1,000,000 shares of the Company's Common Stock .
WHEREAS, the Company has indicated a desire to sell 1,000,000
shares of the Company's Common Stock to the Investor on the terms set forth
herein.
WHEREAS, the Company and the Investor have agreed that this
Agreement shall constitute the entire understanding and agreement between the
parties with regard to the subject matter hereof.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Stock. Subject to the terms and
conditions of this Agreement, the Company agrees to sell to the Investor and the
Investor agrees to purchase from the Company the number of shares of the
Company's Common Stock indicated on Exhibit A hereto (the "Stock"), having the
rights, preferences, privileges and restrictions set forth in the Second Amended
and Restated Certificate of Incorporation of the Company (the "Restated
Certificate") to be filed with the Delaware Secretary of State upon the Closing
(as defined below), the form of which has been filed as Exhibit 3.2 to the
Company's Registration Statement (the "Registration Statement") on Form S-1
(File No. 333-92545) for the Company's initial public offering (the "IPO").
1.2 The Closing. The purchase and sale of the Stock shall
be held at the Company's offices immediately following the closing of the IPO
or, if later, upon satisfaction or waiver of each of the conditions set forth in
Sections 4 and 5 (the "Closing"). At the Closing, the Company will deliver the
Stock to the Investor against payment of the purchase price therefor by check
payable to the order of the Company or by wire transfer. The per share purchase
price for the Stock shall be ninety-six percent (96%) the "Price to Public" for
one share of the Company's Common Stock specified in the final prospectus with
respect to the IPO.
2. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Investor that:
2.1 Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry out the transaction contemplated by this Agreement and to carry on its
business as now conducted. The Company is duly qualified to
<PAGE> 5
transact business and is in good standing in each jurisdiction in which the
failure to so qualify would have a material adverse effect on its business or
properties.
2.2 Authorization. All corporate action on the part of the
Company, its officers, directors, stockholders and any third party necessary for
the authorization, execution and delivery of this Agreement, the performance of
all obligations of the Company hereunder, and the authorization, issuance, sale
and delivery of the Stock has been taken or will be taken prior to the Closing,
and this Agreement constitutes a valid and legally binding obligation of the
Company, enforceable in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
2.3 Valid Issuance of Stock. The Stock, when issued, sold
and delivered in accordance with the terms hereof for the consideration
expressed herein, will be duly and validly issued, fully paid and nonassessable
and will be free of restrictions on transfer other than restrictions on transfer
under this Agreement and under applicable state and federal securities laws.
There are no statutory or contractual shareholders' preemptive rights or rights
of first refusal with respect to the issuance of the Stock other than rights
that have been satisfied or waived. Subject in part to the truth and accuracy of
the Investor's representations set forth in Section 3 of this Agreement, the
offer, sale and issuance of the Stock as contemplated by this Agreement are
exempt from the registration requirements of any applicable state and federal
securities laws.
2.4 Title to Property and Assets. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens that arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in compliance with such leases and, to the best of its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.
2.5 Compliance with Other Documents. The execution and
delivery of this Agreement, consummation of the transactions contemplated
hereby, and compliance with the terms and provisions hereof will not conflict
with or result in a breach of the terms and conditions of, or constitute a
default under the Certificate of Incorporation or Bylaws of the Company or of
any contract or agreement to which the Company is now a party, except where such
conflict, breach or default of any such contract or agreement, either
individually or in the aggregate, would not have a material adverse effect on
the Company's business, financial condition or results of operations.
2.6 Registration Statement. The Registration Statement
shall not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the Securities and Exchange
Commission ("SEC"), contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
2
<PAGE> 6
2.7 Litigation. Except as disclosed in the Registration
Statement, there are no actions, proceedings or investigations pending against
the Company, that, either in any case or in the aggregate, would result in any
material adverse change in the business, financial condition, or results of
operations of the Company.
2.8 Intellectual Property. Except as disclosed in the
Registration Statement, the Company owns, possesses or can acquire on reasonable
terms, adequate trade names and other rights to inventions, know-how,
copyrights, confidential information and other intellectual property and, to the
Company's knowledge, trademarks and patents (collectively, "Intellectual
Property Rights") necessary to conduct the business now operated by it, or
presently employed by it, and has not received any notice of infringement of or
conflict with asserted rights of others with respect to any intellectual
property rights that, if determined adversely to the Company, would individually
or in the aggregate have a material adverse effect on the condition (financial
or other), business, properties or results of operations.
2.9 Financial Statements. The financial statements
included in the Registration Statement present fairly the financial position of
the Company as of the dates shown and its results of operations and cash flows
for the periods shown, reflect all material liabilities to which the Company is
subject, and, except as otherwise disclosed in the Registration Statement, such
financial statements have been prepared in conformity with the generally
accepted accounting principles in the United States applied on a consistent
basis.
2.10 Changes. Except as disclosed in the Registration
Statement, since the date of the latest audited financial statements included in
the Registration Statement there has been no material adverse change, nor any
development or event involving a prospective material adverse change, in the
condition (financial or other), business, properties or results of operations of
the Company taken as a whole.
2.11 Taxes. The Company has filed on a timely basis all
tax returns and reports (including information returns and reports) as required
by law. These returns and reports are true and correct in all material respects
except to the extent that a reserve has been reflected on the Company's
financial statements in accordance with generally accepted accounting
principles. The Company has paid all taxes and other assessments due, except
those contested by it in good faith and except to the extent that a reserve has
been reflected on the Company's financial statements in accordance with
generally accepted accounting principles. The provision for taxes of the Company
as shown in the Company's financial statements is adequate for taxes due or
accrued as of the date thereof.
3. Representations and Warranties of the Investor. The Investor
hereby represents and warrants that:
3.1 Authorization. This Agreement constitutes the valid
and legally binding obligation of the Investor, enforceable in accordance with
its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and by general principles of equity.
3
<PAGE> 7
3.2 Investigation. The Investor acknowledges that it has
had an opportunity to discuss the business, affairs and current prospects of the
Company with the Company's chief executive officer or other executive officers.
The Investor further acknowledges having had access to information about the
Company that it has requested or considers necessary for purposes of purchasing
the Stock. The foregoing, however, does not limit or modify the representations
and warranties of the Company in Section 2 of this Agreement or the right of the
Investors to rely thereon.
3.3 Accredited Investor. The Investor is an "accredited
investor" as such term is defined in Regulation D adopted by the SEC.
3.4 Purchase Entirely for Own Account. This Agreement is
made with the Investor in reliance upon the Investor's representation to the
Company, which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Stock will be acquired for investment for the Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same.
3.5 Restricted Securities. Investor understands that the
Stock it is purchasing are characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the "Act"), only in certain limited
circumstances. In this connection, Investor represents that it is familiar with
SEC Rule 144, as presently in effect, and understands the resale limitations
imposed thereby and by the Act.
4. Conditions to the Investor's Obligation at Closing. The
obligation of the Investor to purchase the Stock at the Closing is subject to
the fulfillment to the Investor's satisfaction on or prior to the Closing of the
following conditions:
4.1 Representations and Warranties. The representations
and warranties made by the Company in Section 2 hereof shall be true and correct
when made, and shall be true and correct as of the Closing with the same force
and effect as if they had been made on and as of such date, and all covenants
made by the Company shall have been performed to Investor's satisfaction. The
Chief Executive Officer of the Company shall deliver at the Closing a
certificate stating that the condition specified in the preceding sentence has
been fulfilled.
4.2 Securities Laws. The offer and sale of the Stock to
the Investor pursuant to this Agreement shall be exempt from the registration
requirements of the Act and qualification requirements of all applicable state
securities laws.
4.3 Authorizations. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body that are
required in connection with the lawful issuance and sale of the Stock pursuant
to this Agreement shall have been duly obtained and shall be effective on and as
of the Closing.
4
<PAGE> 8
4.4 Initial Public Offering of Common Stock. The closing
of the IPO shall have occurred.
5. Conditions to the Company's Obligations at Closing. The
obligation of the Company to sell the Stock at the Closing is subject to the
fulfillment to the Company's satisfaction on or prior to the Closing of the
following conditions:
5.1 Representations and Warranties. The representations
and warranties of the Investor contained in Section 3 hereof shall be true as of
the Closing with the same force and effect as if they had been made on and as of
such date, subject to changes contemplated by this Agreement.
5.2 Securities Laws. The offer and sale of the Stock to
the Investor pursuant to this Agreement shall be exempt from the registration
requirements of the Act qualification requirements of all applicable state
securities laws.
5.3 Authorizations. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body that are
required in connection with the lawful issuance and sale of the Stock pursuant
to this Agreement shall have been duly obtained and shall be effective on and as
of the Closing.
5.4 Initial Public Offering of Common Stock. The closing
of the IPO shall have occurred.
5.5 Payment of Purchase Price. The Investor shall have
delivered to the Company the purchase price for the Stock as set forth in
Section 1.2 hereof.
5.6 Lock-Up Agreement. The Investor shall have delivered
to the Company an executed Lock-Up Agreement with Credit Suisse First Boston
Corporation, the form of which is attached as Exhibit B hereto.
6. Covenants of the Company and the Investor.
6.1 Agreement Not to Transfer.
(a) Prior to the first anniversary of the Closing,
the Investor shall not, directly or indirectly, sell, offer to sell, contract to
sell (including, without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of any securities of the Company held
by it at any time during such period (a "Transfer") unless the Company consents
to such Transfer and the transferee agrees to be bound by this Agreement;
provided, however, that the Investor may transfer shares of the Company's Common
Stock to an entity in which the Investor holds fifty percent (50%) or more of
the voting stock or to any partner, limited partner or affiliate of such
Investor without the Company's consent so long as the transferee agrees to be
bound by this Agreement; and provided further, however, that beginning 181 days
after the date of the final prospectus with respect to the IPO, the Investor may
hedge up to all of the Stock if not less than 5 days prior thereto the Investor
delivers to the Company the written opinion of its counsel, in form and
substance reasonably acceptable to the Company, to the effect that such
transaction, either alone or together with all other such transactions by the
5
<PAGE> 9
Investor, will not jeopardize or otherwise adversely affect the exemption from
registration under the Securities Act relied upon by the Company for the
issuance of the Stock.
(b) In order to enforce the restrictions on Transfer
set forth in 6.1(a) above (the "Transfer Restrictions"), the Company may impose
stop transfer instructions with respect to the Stock until the end of the
restricted period.
6.2 Market Stand-Off. In addition to the Transfer
Restrictions (which shall in no way be limited by the following), in connection
with any underwritten public offering by the Company of its equity securities
pursuant to an effective registration statement filed under the Act, the
Investor shall not Transfer any shares of the Stock, except for Common Stock
included in such registration, without the prior written consent of the Company
and its underwriters. Such restriction (the "Market Stand-Off") shall be in
effect for such period of time from and after the effective date of the final
prospectus for the offering as may be requested by the Company or such
underwriters; provided, however, that (i) such Market Stand-Off shall not exceed
one hundred eighty (180) days, and (ii) the Investor shall be subject to the
Market Stand-Off only if all officers, directors, entities that are affiliates
of any director and any shareholder owning at least 5% of the outstanding shares
of the Company enter into similar agreements. In order to enforce the Market
Stand-Off, the Company may impose stop-transfer instructions with respect to the
Stock until the end of the applicable stand-off period.
6.3 Registration of Stock. The Company agrees that, with
regard to the Stock, the Investor shall have the registration rights described
in Exhibit C attached hereto. The Investor understands and agrees that (i) the
Stock will be characterized as "restricted securities" under the federal
securities laws inasmuch as it is being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances, and (ii) each certificate
representing the Stock and any other securities issued in respect of the Stock
upon any stock split, stock dividend, recapitalization, merger or similar event
(unless no longer required in the opinion of counsel for the Company) shall be
stamped or otherwise imprinted with appropriate legends mandated by federal and
state securities laws.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California, without regard to the conflict of law provisions thereof.
7.2 Survival; Additional Securities. The representations
and warranties set forth in Sections 2 and 3 shall survive until two years after
the date of the Closing. The covenants and agreements set forth in Section 6
shall survive in accordance with their terms. Any new, substituted or additional
securities which are by reason of any stock split, stock dividend,
recapitalization or reorganization distributed with respect to the Stock ("Stock
Distributions") shall be immediately subject to the covenants and agreements set
forth in Section 6 to the same extent the Stock is at such time covered by such
provisions.
6
<PAGE> 10
7.3 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the respective successors and assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. Notwithstanding
anything to the contrary contained herein, the covenants set forth in Section 6
shall not be binding upon any entity (other than an affiliate of the Investor)
which acquires any shares of the Stock or a Stock Distribution in a transaction
permitted hereunder.
7.4 Entire Agreement. This Agreement constitutes the
entire understanding and agreement between the parties with regard to the
subject matter hereof.
7.5 Notices. Except as otherwise provided, all notices and
other communications required or permitted hereunder shall be in writing, shall
be effective when given, and shall in any event be deemed to be given upon
receipt or, if earlier, (i) five (5) days after deposit with the U.S. postal
service or other applicable postal service, if delivered by first class mail,
postage prepaid, (ii) upon delivery, if delivered by hand, (iii) one (1)
business day after the day of deposit with Federal Express or similar overnight
courier, freight prepaid, if delivered by overnight courier or (iv) one (1)
business day after the day of facsimile transmission, if delivered by facsimile
transmission with copy by first class mail, postage prepaid, and shall be
addressed, (a) if to the Investor, at the Investor's address set forth below its
signature, or (b) if to the Company, at its address as set forth below its
signature, or at such other address as the Company shall have furnished to the
Investor in writing.
7.6 Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of the Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Company and the Investor.
7.7 Legal Fees. In the event of any action at law, suit in
equity or arbitration proceeding in relation to this Agreement or the Stock or
any Stock Distribution, the prevailing party shall be paid by the other party a
reasonable sum for the attorneys' fees and expenses incurred by such prevailing
party.
7.8 Expenses. Irrespective of whether the Closing is
effected, the Company and the Investor shall each pay their own costs and
expenses incurred with respect to the negotiation, execution, delivery and
performance of this Agreement.
7.9 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
7.10 Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.11 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement
7
<PAGE> 11
and the balance of the Agreement shall be interpreted as if such provision were
so excluded and shall be enforceable in accordance with its terms.
7.12 Confidentiality. The parties hereto agree that:
(a) except with the prior written permission of the
other party, it shall at all times keep confidential and not divulge, furnish,
or make accessible to anyone any confidential information, knowledge, or data
concerning or relating to the business or financial affairs of such other party
to which said party has been or shall become privy by reason of this Agreement,
discussions or negotiations relating to this Agreement, or the performance of
its obligations hereunder.
(b) the Company shall not disclose Investor's (or any
of its Affiliates') name or identity as an investor in the Company in any press
release or other public announcement or in any document or material filed with
any governmental entity (including the Registration Statement, without the prior
written consent of Investor (or its applicable Affiliate(s)), unless such
disclosure is required by applicable law or governmental regulations or by order
of a court of competent jurisdiction, in which case prior to making such
disclosure the Company shall give written notice to Investor (as applicable),
describing in reasonable detail the proposed content of such disclosure and
shall permit Investor (as applicable), to review and comment upon the form and
substance of such disclosure; provided, however, that once such information has
been disclosed pursuant to this section 7.12, the Company shall not be required
to obtain Investor's consent or consultation for subsequent disclosures of such
information.
8
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year hereinabove first written.
SELECTICA, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address: 3 West Plumeria Drive
San Jose, California 95134
SAMSUNG SDS
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address:
------------------------------------------
<PAGE> 13
EXHIBIT A
<TABLE>
<CAPTION>
Investor Number of Shares
- -------- ----------------
<S> <C>
Samsung SDS 1,000,000
</TABLE>
E-2
<PAGE> 14
EXHIBIT B
E-3
<PAGE> 15
EXHIBIT C
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Exhibit C,
capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Stock Purchase Agreement between the Company and the
Investor to which this Exhibit C is attached. In addition, the following terms
used herein shall have the following meanings: (a) the term "1934 Act" means the
Securities Exchange Act of 1934, as amended; and (b) the term "register",
"registered," and "registration" refer to a registration effected by preparing
and filing a registration statement or similar document in compliance with the
Act, and the declaration or ordering of effectiveness of such registration
statement or document.
1.2 Company Registration.
(a) If, at any time 180 days after the Registration
Statement is declared effective by the SEC, the Company proposes to register any
of its stock or other securities under the Act in connection with the public
offering of such securities (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, a registration
relating to a corporate reorganization or other transaction under Rule 145 of
the Act, a registration on any form that does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Stock, or a registration in which the only Common Stock
being registered is Common Stock issuable upon conversion of debt securities
that are also being registered), the Company shall, at such time, promptly give
Investor written notice of such registration. Upon the written request of
Investor given within twenty (20) days after mailing of such notice by the
Company, the Company shall, subject to the provisions of Section 1.2(c) below,
use all reasonable efforts to cause to be registered under the Act all of the
Stock that each Investor has requested to be registered. Nothing contained in
this Section 1.2 obligates the Company to register any of its stock or other
securities under the Act.
(b) The Company shall have the right to terminate or
withdraw any registration initiated by it under this Section 1.2 prior to the
effectiveness of such registration whether or not Investor has elected to
include securities in such registration.
(c) In connection with any offering involving an
underwriting of shares of the Company's capital stock, the Company shall not be
required under this Section 1.2 to include any of the Investor's securities in
such underwriting unless Investor accepts the terms of the underwriting as
agreed upon between the Company and the underwriters selected by it (or by other
persons entitled to select the underwriters) and enter into an underwriting
agreement in customary form with an underwriter or underwriters selected by the
Company, and then only in such quantity as the underwriters determine in their
sole discretion will not jeopardize the success of the offering by the Company.
If the total amount of securities, including share of the Stock, requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including shares of the Stock, that
E-4
<PAGE> 16
the underwriters determine in their sole discretion will not jeopardize the
success of the offering. The securities to be so included shall be apportioned
pro rata among the selling stockholders, including the Investor, the Holders of
Registrable Securities (as such terms are defined in that certain Amended and
Restated Investor Rights Agreement dated June 16, 1999, by and among the Company
and certain of its stockholders) and any other stockholder of the Company
entitled to similar registration rights, according to the total amount of
securities entitled to be included therein owned by each selling stockholder or
in such other proportions as shall mutually be agreed to by such selling
stockholders.
1.3 Investor Obligation to Furnish Information. It shall
be a condition precedent to the obligations of the Company to take any action
pursuant hereto with respect to the Stock that the Investor shall furnish to the
Company such information regarding itself, the Stock, and the intended method of
disposition of such securities as shall be required to effect the registration
of such Stock.
1.4 Expenses of Registration. All expenses incurred in
connection with registrations, filings or qualifications pursuant hereto,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the Company
(including fees and disbursements of counsel for the Company in its capacity as
counsel to the Investor hereunder but excluding the fees and disbursements of
any other counsel for the Investor) shall be borne by the Company.
1.5 Indemnification. In the event any Stock is included in
a registration statement under Section 1.2:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless the Investor, any underwriter (as defined in the
Act) for the Investor and each person, if any, who controls the Investor or
underwriter within the meaning of the Act or the 1934 Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to the Investor, or such underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection (a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and
E-5
<PAGE> 17
in conformity with written information furnished expressly for use in connection
with such registration by any such Investor, underwriter or controlling person.
(b) To the extent permitted by law, the Investor will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, and any
controlling person of any such underwriter, against any losses, claims, damages,
or liabilities (joint or several) to which any of the foregoing persons may
become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Investor expressly for
use in connection with such registration; and each such Investor will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection (b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection (b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Investor, which consent shall not be unreasonably withheld; provided, that, in
no event shall any indemnity under this subsection (b) exceed the gross proceeds
from the offering received by the Investor.
(c) Promptly after receipt by an indemnified party
under this Section 1.5 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.5,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.5, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.5.
(d) If the indemnification provided for in this
Section 1.5 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to there in, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions
E-6
<PAGE> 18
that resulted in such loss, liability, claim, damage, or expense as well as any
other relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in an underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and the Investor
under this Section 1.5 shall survive the completion of any offering of the Stock
in a registration statement pursuant hereto, and otherwise.
1.6 Termination. The Company's obligation to register the
Stock pursuant to this agreement shall terminate on the earlier of (i) the third
anniversary of the Closing and (ii) the date on which all shares of the Stock
held by the Investor may immediately be sold under Rule 144 during any 90-day
period.
E-7
<PAGE> 1
EXHIBIT 10.21
BLDG: Orchard 4
LEASE AGREEMENT OWNER: 1
PROP: 0029
UNIT: 1
TENANT: SELE01
LEASE: 0029-SELE01-01
THIS LEASE, made this 1st day of October, 1999 between JOHN ARRILLAGA,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S
TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter
called Landlord, and SELECTICA, INC., a California corporation, hereinafter
called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A",
attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
All of that certain 79,803(+/-) square foot, two-story building located at 3 W.
Plumeria Drive, San Jose, California 95134. Said Premises is more particularly
shown within the area outlined in Red on Exhibit A attached hereto. The entire
parcel, of which the Premises is a part, is shown within the area outlined in
Green on Exhibit A attached. The Premises shall be improved by Landlord as
shown on Exhibit B to be attached hereto, and is leased on an "as-is" basis, in
its present condition, and in the configuration as shown in Red on Exhibit B to
be attached hereto.
As used herein the Complex shall mean and include all of the land outlined in
Green and described in Exhibit "A", attached hereto, and all of the buildings,
improvements, fixtures and equipment now or hereafter situated on said land.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of general
office, light manufacturing, research and development, and storage and other
uses necessary for Tenant to conduct Tenant's business, provided that such uses
shall be in accordance with all applicable governmental laws and ordinances and
for no other purpose. Tenant shall not do or permit to be done in or about the
Premises or the Complex nor bring or keep or permit to be brought or kept in or
about the Premises or the Complex anything which is prohibited by or will in
any way increase the existing rate of (or otherwise affect) fire or any
insurance covering the Complex or any part thereof, or any of its contents, or
will cause a cancellation of any insurance covering the Complex or any part
thereof, or any of its contents. Tenant shall not do or permit to be done
anything in, on or about the Premises or the Complex which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Complex or injure or annoy them, or use or allow the Premises to be used for
any improper, immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises or the
Complex. No sale by auction shall be permitted on the Premises. Tenant shall
not place any loads upon the floors, walls, or ceiling, which endanger the
structure, or place any harmful fluids or other materials in the drainage
system of the building, or overload existing electrical or other mechanical
systems. No waste materials or refuse shall be dumped upon or permitted to
remain upon any part of the Premises or outside of the building in which the
Premises are a part, except in trash containers placed inside exterior
enclosures designated by Landlord for that purpose or inside of the building
proper where designated by Landlord. No materials, supplies, equipment,
finished products or semi-finished products, raw materials or articles of any
nature shall be stored upon or permitted to remain outside the Premises or on
any portion of common area of the Complex. No loudspeaker or other device,
system or apparatus which can be heard outside the Premises shall be used in or
at the Premises without the prior written consent of Landlord. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises. Tenant
shall indemnify, defend and hold Landlord harmless against any loss, expense,
damage, attorneys' fees, or liability arising out of failure of Tenant to
comply with any applicable law. Tenant shall comply with any covenant,
condition, or restriction ("CC&R's") affecting the Premises. The provisions of
this paragraph are for the benefit of Landlord only and shall not be construed
to be for the benefit of any tenant or occupant of the Complex.
2. TERM *
A. The term of this Lease shall be for a period of TEN (10) years SIXTEEN
(16) days (unless sooner terminated as hereinafter provided) and, subject to
Paragraphs 2(B) and 3, shall commence on the 15th day of November, 1999 and end
on the 30th day November of 2009.
B. Possession of the Premises shall be deemed tendered and the term of
this Lease shall commence when the first of the following occurs:
(a) One day after a Certificate of Occupancy is granted by the proper
governmental agency, or, if the governmental agency having jurisdiction over the
area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed; or
(b) Upon the occupancy of the Premises by any of Tenant's operating
personnel; or
(c) When the Tenant Improvements have been substantially completed for
Tenant's use and occupancy, in accordance and compliance with Exhibit B of this
Lease Agreement; or
(d) As otherwise agreed in writing.
3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver possession
of said premises to Tenant at the commencement of the said term, as
hereinbefore specified, this Lease shall not be void or voidable; no obligation
of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be
liable to Tenant for any loss or damage resulting therefrom; but in that event
the commencement and termination dates of the Lease, and all other dates
affected thereby shall be revised to conform to the date of Landlord's delivery
of possession, as specified in Paragraph 2(b), above. The above is, however,
subject to the provision that the period of delay, of delivery of the premises
shall not exceed 45 days from the commencement date herein (except those delays
caused by Acts of God, strikes, war, utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded
in calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord, terminate this Lease.
* It is agreed in the event said Lease commences on a date other than the first
day of the month the term of the Lease will be extended to account for the
number of days in the partial month. The Basic Rent during the resulting
partial month will be pro-rated (for the number of days in the partial month)
at the Basic Rent scheduled for the projected commencement date as shown in
Paragraph 43.
page 1 of 8
<PAGE> 2
36/100
4. RENT
A. Basic Rent. Tenant agrees to pay to Landlord at such place as Landlord
may designate without deduction, offset, prior notice, or demand, and Landlord
agrees to accepts as Basic rent for the leased Premises the total sum of TWENTY
ONE MILLION SIX HUNDRED SIXTY FOUR THOUSAND SEVEN HUNDRED FORTY AND
($21,664,740.36) Dollars in lawful money of the United States of America,
payable as follows:
See Paragraph 43 for Basic Rent Schedule
B. Time for Payment. In the event that the term of this Lease commences on a
date other than the first day of a calendar month, on the date of commencement
of the term hereof Tenant shall pay to Landlord as rent for the period from
such date of commencement to the first day of the next succeeding calendar
month that proportion of the monthly rent hereunder which the number of days
between such date of commencement and the first day of the next succeeding
calendar month bears to thirty (30). In the event that the term of this Lease
for any reason ends on a date other than the last day of a calendar month, on
the first day of the last calendar month of the term hereof Tenant shall pay to
Landlord as rent for the period from said first day of said last calendar month
to and including the last day of the term hereof that proportion of the monthly
rent hereunder which the number of days between said first day of said last
calendar month and the last day of the term hereof bears to thirty (30).
C. Late Charge. Notwithstanding any other provision of this Lease, if Tenant
is in default in the payment of rental as set forth in this Paragraph 4 when
due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten
(10) days. Said late charge shall equal ten (10%) percent of each rental
payment so in default.
D. Additional Rent. Beginning with the commencement date of the term of
this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as
Additional Rent the following:
(a) Tenant's proportionate share of all Taxes relating to the Complex as
set forth in Paragraph 12, and
(b) Tenant's proportionate share of all premiums and deductibles relating
to the Complex, as set forth in Paragraph 15, and
(c) Tenant's proportionate share of expenses for the operation, management,
maintenance and repair of the Building (including common areas of the
Building) and Common areas of the Complex in which the Premises are
located as set forth in Paragraph 7, and
(d) All charges, costs and expenses, which Tenant is required to pay
hereunder, together with all Interest and penalties, costs and expenses
including attorneys' fees and legal expenses, that may accrue thereto
in the event of Tenant's failure to pay such amounts, and all damages,
reasonable costs and expenses which Landlord may incur by reason of
default of Tenant or failure on Tenant's part to comply with the terms
of this Lease. In the event of nonpayment by Tenant of Additional Rent
Landlord shall have all the rights and remedies with respect thereto as
Landlord has for nonpayment of rent.
The Additional Rent due hereunder shall be paid to Landlord or Landlord's agent
(i) within five days for taxes and insurance and within thirty days for all
other Additional Rent items after presentation of invoice from Landlord or
Landlord's agent setting forth such Additional Rent and/or (ii) at the option
of Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorate
share of an amount estimated by Landlord to be Landlord's approximate average
monthly expenditure for such Additional Rent items, which estimated amount
shall be reconciled within 120 days of the end of each calendar year or more
frequently if Landlord so elects to do so at Landlord's sole and absolute
discretion, as compared to landlord's actual expenditure for said Additional
Rent items, with Tenant paying to Landlord, upon demand, any amount of actual
expenses expended by Landlord in excess of said estimated amount, or Landlord
crediting to Tenant (providing Tenant is not in default in the performance of
any of the terms, covenants and conditions of this Lease) any amount of
estimated payments made by Tenant in excess of Landlord's actual expenditures
for said Additional Rent items.
The respective obligations of Landlord and Tenant under this paragraph shall
survive the expiration or other termination of the term of this Lease, and if
the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calendar year and shall be prorated in the proportion which the number
of days in such calendar year preceding such expiration of termination bears to
365.
E. Fixed Management Fee. Beginning with the Commencement Date of the Term of
this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent and
Additional Rent, a fixed monthly management fee equal to 2% of the Basic Rent
due for each month during the Lease Term ("Management Fee").
F. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder
and all payments hereunder for Additional Rent shall be paid to Landlord at the
office of Landlord at Peery/Arrillaga, File 1504, Box 60000, San Francisco, CA
94160 or to such other person or to such other place as Landlord may from time
to time designate in writing.
G. Security Deposit. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum of FOUR HUNDRED THIRTY EIGHT THOUSAND
($438,916.50) Dollars. Said sum shall be held by Landlord as a Security Deposit
for the faithful performance by Tenant of all of the terms, covenants and
conditions of this Lease to be kept and performed by Tenant during the term
hereof. If Tenant defaults with respect to any provisions of this Lease,
including, but not limited to the provisions relating to the payment of rent and
any of the monetary sums due herewith. Landlord may (but shall not be required
to) use, apply or retain all or any part of this Security Deposit for the
payment of any other amount which Landlord may spend by reason of Tenant's
default or to compensate Landlord for any other loss or damage which landlord
may suffer by reason of Tenant's default. If any portion of said Deposit is so
used or applied, Tenant shall, within ten (10) days after written demand
therefor, deposit cash with Landlord in the amount sufficient to restore the
Security Deposit to its original amount. Tenant's failure to do so shall be a
material breach of this Lease. Landlord shall not be required to keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on such Deposit. If Tenant fully and faithfully performs
every provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant (or at Landlord's option, to the
last assignee of Tenant's interest hereunder) at the expiration of the Lease
term and after Tenant has vacated the Premises. In the event of termination of
Landlord's interest in this Lease, Landlord shall transfer said Deposit to
Landlord's successor in interest whereupon Tenant agrees to release Landlord
from liability for the return of such Deposit or the accounting therefor.
5. RULES AND REGULATIONS AND COMMON AREA. Subject to the terms and conditions
of this Lease and such Rules and Regulations as Landlord may from time to time
prescribe, Tenant and Tenant's employees, invitees and customers shall, in
common with other occupants of the Complex in which the Premises are located,
and their respective employees, invitees and customers, and others entitled to
the use thereof, have the non-exclusive right to use the access roads, parking
areas, and facilities provided and designated by Landlord for the general use
and convenience of the occupants of the Complex in which the Premises are
located, which areas and facilities are referred to herein as "Common Area".
This right shall terminate upon the termination of this Lease. Landlord reserves
the right from time to time to make changes in the shape, size, location, amount
and extent of Common Area. Landlord further reserves the right to promulgate
such reasonable rules and regulations relating to the use of the Common Area,
and any part of parts thereof, as Landlord may deem appropriate for the best
interests of occupants of the Complex. The Rules and Regulations shall be
binding upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall
abide by them and cooperate in their observance. Such Rules and Regulations may
be amended by Landlord from time to time, with or without advance notice, and
all amendments shall be effective upon delivery of a copy to Tenant. Landlord
shall be not be responsible to Tenant for the non-performance by any other
tenant or occupant of the Complex of any of said Rules and Regulations.
Landlord shall operate, manage and maintain the Common Area. The manner in
which the Common Area shall be maintained and the expenditures for such
maintenance shall be at the discretion of Landlord.
Page 2 of 8
<PAGE> 3
6. PARKING Tenant shall have the right to use with other tenants or
occupants of the Complex 220 parking spaces in the common parking areas of the
Complex. Tenant agrees, that Tenant, Tenant's employees, agents, representatives
and/or invitees shall not use parking spaces in excess of said 220 spaces
allocated to Tenant hereunder. Landlord shall have the right, at Landlord's sole
discretion, to specifically designate the location of Tenant's parking spaces
within the common parking areas of the Complex in the event of a dispute among
the tenants occupying the building and/or Complex referred to herein, in which
event Tenant agrees that Tenant, Tenant's employees, agents, representatives
and/or invitees shall not use any parking spaces other than those parking spaces
specifically designated by Landlord for Tenant's use. Said parking spaces, if
specifically designated by Landlord to Tenant, may be relocated by Landlord at
any time, and from time to time, Landlord reserves the right, at Landlord's sole
discretion, to rescind any specific designation of parking spaces, thereby
returning Tenant's parking spaces to the common parking area. Landlord shall
give Tenant written notice of any change in Tenant's parking spaces. Tenant
shall not, at any time, park, or permit to be parked, any trucks or vehicles
adjacent to the loading areas so as to interfere in any way with the use of such
areas, nor shall Tenant at any time park, or permit the parking of Tenant's
trucks or other vehicles or the trucks and vehicles of Tenant's suppliers or
others, in any portion of the common area not designated by Landlord for such
use by Tenant. Tenant shall not park nor permit to be parked, any inoperative
vehicles or equipment on any portion of the common parking area or other common
areas of the Complex. Tenant agrees to assume responsibility for compliance by
its employees with the parking provision contained herein. If Tenant or its
employees park in other than such designated parking areas, then Landlord may
charge Tenant, as an additional charge, and Tenant agrees to pay, ten ($10.00)
Dollars per day for each day or partial day each such vehicle is parked in any
area other than that designated. Tenant hereby authorizes Landlord at Tenant's
sole expense to tow away from the Complex any vehicle belonging to Tenant or
Tenant's employees parked in violation of these provisions, or to attach
violation stickers or notices to such vehicles. Tenant shall use the parking
areas for vehicle parking only, and shall not use the parking areas for storage.
7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF
THE COMPLEX As Additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord Tenant's proportionate share (calculated on
a square footage or other equitable basis as calculated by Landlord) of all
expenses of operation, management, maintenance and repair of the Common Areas of
the Complex including, but not limited to, license, permit, and inspection fees;
security; utility charges associated with exterior landscaping and lighting
(including water and sewer charges); all charges incurred in the maintenance and
replacement of landscaped areas, lakes, parking lots and paved areas (including
repairs, replacement, resealing and restriping), sidewalks, driveways;
maintenance, repair and replacement of all fixtures and electrical, mechanical,
and plumbing systems; structural elements and exterior surfaces of the
buildings; salaries and employee benefits of personnel and payroll taxes
applicable thereto; supplies, materials, equipment and tools; the cost of
capital expenditures which have the effect of reducing operating expenses,
provided, however, that in the event Landlord makes such capital improvements,
Landlord may amortize its investment in said improvements (together with
interest at the rate of fifteen (15%) percent per annum on the unamortized
balance) as an operating expense in accordance with standard accounting
practices, provided, that such amortization is not at a rate greater than the
anticipated savings in the operating expenses.
"Additional rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost for the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.
8. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder, Tenant accepts the
Premises as being in good and sanitary order, condition and repair and accepts
the building and improvements included in the Premises in their present
condition and without representation or warranty by Landlord as to the condition
of such building or as to the use or occupancy which may be made thereof. Any
exceptions to the foregoing must be by written agreement executed by Landlord
and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner
termination of this Lease, to surrender the Premises promptly and peaceably to
Landlord in good condition and repair (damage by Acts of God, fire, normal wear
and tear excepted), with all interior walls painted, or cleaned so that they
appear freshly painted, and repaired and replaced, if damaged; all floors
cleaned and waxed; all carpets cleaned and shampooed; the air conditioning and
heating equipment serviced by a reputable and licensed service firm and in good
operating condition (provided the maintenance of such equipment has been
Tenant's responsibility during the term of this Lease) together with all
alterations, additions, and improvements which may have been made in, to, or on
the Premises (except movable trade fixtures installed at the expense of Tenant)
except that Tenant shall ascertain from Landlord within thirty (30) days before
the end of the term of this Lease whether Landlord desires to have the Premises
or any part or parts thereof restored to their condition and configuration as
when the Premises were delivered to Tenant and if Landlord shall so desire, then
tenant shall restore said Premises or such part or parts thereof before the end
of this Lease at Tenant's sole cost and expense. Tenant, on or before the end of
the term or sooner termination of this Lease, shall remove all of Tenant's
personal property and trade fixtures from the premises, and all property not so
removed on or before the end of the term or sooner termination of this Lease
shall be deemed abandoned by Tenant and title to same shall thereupon pass to
Landlord without compensation to Tenant. Landlord may, upon termination of this
Lease, remove all moveable furniture and equipment so abandoned by Tenant, at
Tenant's sole cost, and repair any damage caused by such removal at Tenant's
sole cost. If the Premises be not surrendered at the end of the term or sooner
termination of this Lease, Tenant shall indemnify Landlord against loss or
liability resulting from the delay by Tenant in so surrendering the Premises
including, without limitation, any claims made by any succeeding tenant founded
on such delay. Nothing contained herein shall be construed as an extension of
the term hereof or as a consent of Landlord to any holding over by Tenant. The
voluntary or other surrender of this Lease or the Premises by Tenant or a mutual
cancellation of this Lease shall not work as a merger and, at the option of
Landlord, shall either terminate all or any existing subleases or subtenancies
or operate as an assignment to Landlord of all or any such subleases or
subtenancies.
9. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof, without the written
consent of Landlord first had and obtained by Tenant, but at the cost of Tenant,
and any addition to, or alteration of, the Premises, except moveable furniture
and trade fixtures, shall at once become a part of the Premises and belong to
Landlord. Landlord reserves the right to approve all contractors and mechanics
proposed by Tenant to make such alterations and additions. Tenant shall retain
title to all moveable furniture and trade fixtures placed in the Premises. All
heating, lighting, electrical, air conditioning, floor to ceiling partitioning,
drapery, carpeting, and floor installations made by Tenant, together with all
property that has become an integral part of the Premises, shall not be deemed
trade fixtures. Tenant agrees that it will not proceed to make such alteration
or additions, without having obtained consent from Landlord to do so, and until
five (5) days from the receipt of such consent, in order that Landlord may post
appropriate notices to avoid any liability to contractors or material suppliers
for payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work. Tenant
shall, if required by Landlord, secure at Tenant's own cost and expense, a
completion and lien indemnity bond, satisfactory to Landlord, for such work.
Tenant further covenants and agrees that any mechanic's lien filed against the
Premises or against the Complex for work claimed to have been done for, or
materials claimed to have been furnished to Tenant, will be discharged by
Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at
the cost and expense of Tenant. Any exceptions to the foregoing must be made in
writing and executed by both Landlord and Tenant.
10. TENANT MAINTENANCE Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, and in good and sanitary condition. Tenant's
maintenance and repair responsibilities herein referred to include, but are not
limited to, all windows, window frames, plate glass, glazing, truck doors,
plumbing systems (such as water and drain lines, sinks, toilets, faucets,
drains, showers and water fountains), electrical systems (such as panels,
conduits, outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating
and air-conditioning systems (such as compressors, fans, air handlers, ducts,
mixing boxes, thermostats, time clocks, boilers, heaters, supply and return
grills), store fronts, roofs, downspouts, all interior improvements within the
premises including but not limited to wall coverings, window coverings, carpet,
floor coverings, partitioning, ceilings, doors (both interior and exterior,
including closing mechanisms, latches, locks, skylights (if any), automatic fire
extinguishing systems, and elevators and all other interior improvements of any
nature whatsoever. Tenant agrees to provide carpet shields under all rolling
chairs or to otherwise be responsible for wear and tear of the carpet caused by
such rolling chairs if such wear and tear exceeds that caused by normal foot
traffic in surrounding areas. Areas of excessive wear shall be replaced at
Tenant's sole expense upon Lease termination. Tenant hereby waives all rights
under, and benefits of, subsection 1 of Section 1932 and Section 1941 and 1942
of the California Civil Code and under any similar law, statute or ordinance now
or hereafter in effect.
11. UTILITIES Tenant shall pay promptly, as the same become due, all charges
for water, gas, electricity, telephone, telex and other electronic
communications services, sewer service, waste pick-up and any other utilities,
materials or services furnished directly to or used by Tenant on or about the
Premises during the term of this Lease, including, without limitation, any
temporary or permanent utility surcharge or other exactions whether or not
hereinafter imposed.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.
12. TAXES A. As Additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real
Property Taxes, which prorata share shall be allocated to the leased Premises by
square footage or other equitable basis, as calculated by Landlord. The term
"Real Property Taxes", as used herein, shall mean (i) all taxes, assessments,
levies and other charges of any kind or nature whatsoever, general and special,
foreseen and unforeseen (including all installments of principal and interest
required to pay any general or special assessments for public improvements and
any increases resulting from reassessment caused by
page 3 of 8
<PAGE> 4
any change in ownership of the Complex) now or hereafter imposed by any
governmental or quasi-governmental authority or special district having the
direct or indirect power to tax or levy assessments, which are levied or
assessed against, or with respect to the value, occupancy or use of, all or any
portion of the Complex (as now constructed or as may at any time hereafter be
constructed, altered, or otherwise changed) or Landlord's interest therein; any
improvements located within the Complex (regardless of ownership); the fixtures,
equipment and other property of Landlord, real or personal, that are an
integral part of and located in the Complex; or parking areas, public
utilities, or energy within the Complex; (ii) all charges, levies or fees
imposed by reason of environmental regulation or other governmental control of
the Complex; and (iii) all costs and fees (including attorney's fees) incurred
by Landlord in contesting any Real Property Tax and in negotiating with public
authorities as to any Real Property Tax. If at any time during the term of this
Lease the taxation or assessment of the Complex prevailing as of the
commencement date of this lease shall be altered so that in lieu of or in
addition to any Real Property Tax described above there shall be levied,
assessed or imposed (whether by reason of a change in the method of taxation or
assessment, creation of a new tax or charge, or any other cause) an alternate
or additional tax or charge (i) on the value, use or occupancy of the Complex
or Landlord's interest therein or (ii) on or measured by the gross receipts,
income or rentals from the Complex, on Landlord's business of leasing the
Complex, or computed in any manner with respect to the operation of the Complex,
then any such tax or charge, however designated, shall be included within the
meaning of the term "Real Property Taxes" for purposes of this Lease. If any
Real Property Tax is based upon property or rents unrelated to the Complex,
then only that part of such real Property Tax that is fairly allocable to the
Complex shall be included within the meaning of the term "Real Property Taxes".
Notwithstanding the foregoing, the term "Real Property Taxes" shall not include
estate, inheritance, gift or franchise taxes of Landlord or the federal or
state net income tax imposed on Landlord's income from all sources. The term
"Real Estate Taxes" shall also include supplemental taxes related to the period
of Tenant's Lease Term whenever levied, including any such taxes that may be
levied after the Lease Term has expired.
B. Taxes on Tenant's Property
(a) Tenant shall be liable for and shall pay ten days before delinquency,
taxes levied against any personal property or trade fixtures placed by Tenant in
or about the Premises. If any such taxes on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property or if the assessed
value of the Premises is increased by the inclusion therein of a value placed
upon such personal property or trade fixtures of Tenant and if Landlord, after
written notice to Tenant, pays the taxes based on such increased assessment,
which Landlord shall have the right to do regardless of the validity thereof,
but only under proper protest if requested by Tenant, Tenant shall upon demand,
as the case may be, repay to Landlord the taxes so levied against Landlord, or
the proportion of such taxes resulting from such increase in the assessment;
provided that in any such event Tenant shall have the right, in the name of
Landlord and with Landlord's full cooperation, to bring suit in any court of
competent jurisdiction to recover the amount of any such taxes so paid under
protest, and any amount so recovered shall belong to Tenant.
(b) If the Tenant Improvements in the Premises, whether installed, and/or
paid for by Landlord or Tenant and whether or not affixed to the real property
so as to become a part thereof, are assessed for real property tax purposes at
a valuation higher than the valuation at which standard office improvements in
other space in the Complex are assessed, then the real property taxes and
assessments levied against Landlord or the Complex by reason of such excess
assessed valuation shall be deemed to be taxes levied against personal property
of Tenant and shall be governed by the provisions of 12Ba above. If the records
of the County Assessor are available and sufficiently detailed to serve as a
basis for determining whether said Tenant improvements are assessed at a higher
valuation than standard office improvements in other space in the Complex, such
records shall be binding on both the Landlord and the Tenant. If the records of
the County Assessor are not available or sufficiently detailed to serve as a
basis for making said determination, the actual cost of construction shall be
used.
13. LIABILITY INSURANCE Tenant at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general liability insurance
with a combined single limit coverage of not less than Two Million Dollars
($2,000,000) per occurrence for injuries to or death of persons occurring in,
on or about the Premises or the Complex, and property damage insurance with
limits of $500,000. The policy or policies affecting such insurance,
certificates of insurance of which shall be furnished to Landlord, shall name
Landlord as additional insureds, and shall insure any liability of Landlord,
contingent or otherwise, as respects acts or omissions of Tenant, its agents,
employees or invitees or otherwise by any conduct or transactions of any said
persons in or about or concerning the Premises, including any failure of Tenant
to observe or perform any of its obligations hereunder; shall be issued by an
insurance company admitted to transact business in the State of California; and
shall provide that the insurance effected thereby shall not be canceled, except
upon thirty (30) days' prior written notice to Landlord. If, during the term of
this Lease, in the considered opinion of Landlord's Lender, insurance advisor,
or counsel, the amount of insurance described in this paragraph 13 is not
adequate, Tenant agrees to increase said coverage to such reasonable amount as
Landlord's Lender, insurance advisor, or counsel shall deem adequate.
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE
Tenant shall maintain a policy or policies of fire and property damage
insurance in "all risk" form with a sprinkler leakage endorsement insuring the
personal property, inventory, trade fixtures, and leasehold improvements within
the leased Premises for the full replacement value thereof. The proceeds from
any of such policies shall be used for the repair or replacement of such items
so insured.
Tenant shall also maintain a policy or policies of workman's compensation
insurance and any other employee benefit insurance sufficient to comply with all
laws.
15. PROPERTY INSURANCE Landlord shall purchase and keep in force and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (calculated on a square footage or other equitable basis as
calculated by Landlord) of the deductibles on insurance claims and the cost of
policy or policies of insurance covering loss or damage to the Premises and
Complex in the amount of the full replacement value thereof, providing
protection against those perils included within the classification of "all
risks" insurance and flood and/or earthquake insurance, if available, plus a
policy of rental income insurance in the amount of one hundred (100%) percent of
twelve (12) months Basic rent, plus sums paid as Additional Rent and any
deductibles related thereto. If such insurance cost is increased due to
Tenant's use of the Premises or the Complex, Tenant agrees to pay to Landlord
the full cost of such increase. Tenant shall have no interest in nor any right
to the proceeds of any insurance procured by Landlord for Complex.
Landlord and Tenant do each hereby respectively release the other, to the
extent of insurance coverage of the releasing party, from any liability for
loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies, irrespective of the cause
of such fire or casualty; provided, however, that if the insurance policy of
either releasing party prohibits such waiver, then this waiver shall not take
effect until consent to such waiver is obtained. If such waiver is so
prohibited, the insured party affected shall promptly notify the other party
thereof.
16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises or the Complex by
or from any cause whatsoever, including, without limitation, gas, fire, oil,
electricity or leakage of any character from the roof, walls, basement or other
portion of the Premises or the Complex but excluding, however, the willful
misconduct or negligence of Landlord, its agents, servants, employees,
invitees, or contractors of which negligence Landlord has knowledge and
reasonable time to correct. Except as to injury to persons or damage to
property to the extent arising from the willful misconduct or the negligence of
Landlord, its agents, servants, employees, invitees, or contractors. Tenant
shall hold Landlord harmless from and defend Landlord against any and all
expenses, including reasonable attorneys' fees, in connection therewith,
arising out of any injury to or death of any person or damage to or destruction
of property occurring in, on or about the Premises, or any part thereof, from
any cause whatsoever.
17. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of
the provisions if Tenant, immediately upon notification, commences to remedy or
rectify said failure. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party
thereto or not, that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision, shall be
conclusive of the fact as between Landlord and Tenant. This paragraph shall not
be interpreted as requiring Tenant to make structural changes or improvements,
except to the extent such changes or improvements are required as a result of
Tenant's use of the Premises. Tenant shall, at its sole cost and expense,
comply with any and all requirements pertaining to said Premises, of any
insurance organization or company, necessary for the maintenance of reasonable
fire and public liability insurance covering the Premises.
18. LIENS Tenant shall keep the Premises and the Complex free from any liens
arising out of any work performed, materials furnished or obligation incurred
by Tenant. In the event that Tenant shall not, within ten (10) days following
the imposition of such lien, cause the same to be released of record, Landlord
shall have, in addition to all other remedies provided herein and by law, the
right, but no obligation, to cause the same to be released by such means as it
shall deem proper, including payment of the claim giving rise to such lien. All
sums paid by Landlord for such purpose, and all expenses incurred by it in
connection therewith, shall be payable to Landlord by Tenant on demand with
interest at the prime rate of interest as quoted by the Bank of America.
page 4 of 8
<PAGE> 5
19. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or hypothecate
the leasehold estate under this Lease, or any interest herein, and shall not
sublet the Premises, or any part thereof, or any right or privilege appurtenant
thereto, or suffer any other person or entity to occupy or use the Premises, or
any portion thereof, without, in each case, the prior written consent of
Landlord which consent will not be unreasonably withheld. As a condition for
granting this consent to any assignment, transfer, or subletting, Landlord shall
require Tenant to pay to Landlord, as Additional Rent, all rents and/or
additional consideration due Tenant from its assignees, transferees, or
subtenants in excess of the Rent payable by Tenant to Landlord hereunder, for
the assigned, transferred and/or subleased space. Tenant shall, by thirty (30)
days written notice, advise Landlord of its intent to assign or transfer
Tenant's interest in the Lease or sublet the Premises or any portion thereof for
any part of the term hereof. Within thirty (30) days after receipt of said
written notice, Landlord may, in its sole discretion, elect to terminate this
Lease as to the portion of the Premises described in Tenant's notice on the date
specified in Tenant's notice by giving written notice of such election to
terminate. If no such notice to terminate is given to Tenant within said thirty
(30) day period, Tenant may proceed to locate an acceptable sublessee, assignee,
or other transferee for presentment to Landlord for Landlord's approval, all in
accordance with the terms, covenants, and conditions of this paragraph 19. If
Tenant intends to sublet the entire Premises and Landlord elects to terminate
this Lease, this Lease shall be terminated on the date specified in Tenant's
notice. If, however, this Lease shall terminate pursuant to the foregoing with
respect to less than all the Premises, the rent, as defined and reserved
hereinabove shall be adjusted on a pro rata basis to the number of square feet
retained by Tenant, and this Lease as so amended shall continue in full force
and effect. In the event Tenant is allowed to assign, transfer or sublet the
whole or any part of the Premises, with the prior written consent of Landlord,
no assignee, transferee or subtenant shall assign or transfer this Lease, either
in whole or in part, or sublet the whole or any part of the Premises, without
also having obtained the prior written consent of Landlord. A consent of
Landlord to one assignment, transfer, hypothecation, subletting, occupation or
use by any other person shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be a consent to any subsequent similar or
dissimilar assignment, transfer, hypothecation, subletting, occupation or use by
any other person. Any such assignment, transfer, hypothecation, subletting,
occupation or use without such consent shall be void and shall constitute a
breach of this Lease by Tenant and shall, at the option of Landlord exercised by
written notice to Tenant, terminate this Lease. The leasehold estate under this
Lease shall not, nor shall any interest therein, be assignable for any purpose
by operation of law without the written consent of Landlord. As a condition to
its consent, Landlord shall require Tenant to pay all expenses in connection
with the assignment, and Landlord shall require Tenant's assignee or transferee
(or other assignees or transferees) to assume in writing all of the obligations
under this Lease and for Tenant to remain liable to Landlord under the Lease.
Notwithstanding the above, in no event will Landlord consent to a sub-sublease.
20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
Landlord in the land and buildings in which the demised Premises are located, to
secure a loan from a lender (hereinafter referred to as "Lender") to Landlord,
Tenant shall, at the request of Landlord or Lender, execute in writing an
agreement subordinating its rights under this Lease to the lien of such deed of
trust, or, if so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease. Notwithstanding any such subordination, Tenant's possession under this
Lease shall not be disturbed if Tenant is not in default and so long as Tenant
shall pay all rent and observe and perform all of the provisions set forth in
this Lease.
21. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times,
after at least 24 hours notice (except in emergencies) have, the right to enter
the Premises to inspect them; to perform any services to be provided by Landlord
hereunder; to submit the Premises to prospective purchasers, mortgagers or
tenants; to post notices of nonresponsibility; and to alter, improve or repair
the Premises and any portion of the Complex, all without abatement of rent; and
may erect scaffolding and other necessary structures in or through the Premises
where reasonably required by the character of the work to be performed;
provided, however that the business of Tenant shall be interfered with to the
least extent that is reasonably practical. For each of the foregoing purposes,
Landlord shall at all times have and retain a key with which to unlock all of
the doors in an emergency in order to obtain entry to the Premises, and any
entry to the Premises obtained by Landlord by any of said means, or otherwise,
shall not under any circumstances be construed or deemed to be a forcible or
unlawful entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from the Premises or any portion thereof. Landlord shall
also have the right at any time to change the arrangement or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets or other public parts of the Complex and to change the name, number or
designation by which the Complex is commonly known, and none of the foregoing
shall be deemed an actual or constructive eviction of Tenant, or shall entitle
Tenant to any reduction of rent hereunder.
22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, as used herein, includes, but shall
not be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this Lease will not breach substantial any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of Landlord.
In no event shall this Lease or any rights or privileges hereunder be an asset
of Tenant under any bankruptcy, insolvency or reorganization proceedings.
The failure to perform or honor any covenant, condition or representation
made under this Lease shall constitute a default hereunder by Tenant upon
expiration of the appropriate grace period hereinafter provided. Tenant shall
have a period of five (5) days from the date of written notice from Landlord
within which to cure any default in the payment of rental or adjustment thereto.
Tenant shall have a period of thirty (30) days from the date of written notice
from Landlord within which to cure any other default under this Lease; provided,
however, that if the nature of Tenant's failure is such that more than thirty
(30) days is reasonably required to cure the same, Tenant shall not be in
default so long as Tenant commences performance within such thirty (30) day
period and thereafter prosecutes the same to completion. Upon an uncured default
of this Lease by Tenant, Landlord shall have the following rights and remedies
in addition to any other rights or remedies available to Landlord at law or in
equity:
(a). The rights and remedies provided for by California Civil Code Section
1951.2, including but not limited to, recovery of the worth at the time of award
of the amount by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of rental loss for the same period that Tenant
proves could be reasonably avoided, as computed pursuant to subsection (b) of
said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of
Section 1951.2 of the California Civil Code of the amount of rental loss that
could be reasonably avoided shall be made in the following manner: Landlord and
Tenant shall each select a licensed real estate broker in the business of
renting property of the same type and use as the Premises and in the same
geographic vicinity. Such two real estate brokers shall select a third licensed
real estate broker, and the three licensed real estate brokers so selected shall
determine the amount of the rental loss that could be reasonably avoided from
the balance of the term of this Lease after the time of award. The decision of
the majority of said licensed real estate brokers shall be final and binding
upon the parties hereto.
(b). The rights and remedies provided by California Civil Code Section
which allows Landlord to continue the Lease in effect and to enforce all of its
rights and remedies under this Lease, including the right to recover rent as it
becomes due, for so long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.
(c). The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d). To the extent permitted by law the right and power to enter the
Premises and remove therefrom all persons and property, to store such
property in a public warehouse or elsewhere at the cost of and for the account
of Tenant, and to sell such property and apply such proceeds therefrom pursuant
to applicable California law. Landlord may from time to time sublet the Premises
or any part thereof for such term or terms (which may extend beyond the term of
this Lease) and at such rent and such other terms as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises. Upon each subletting, (i) Tenant shall be immediately liable to
pay Landlord, in addition to indebtedness other than rent due hereunder, the
cost of such subletting, including, but not limited to, reasonable attorneys'
fees, and any real estate commissions actually paid, and the cost of such
alterations and repairs incurred by Landlord and the amount, if any, by which
the rent hereunder for the period of such subletting (to the extent such period
does not exceed the term hereof) exceeds the amount to be paid as rent for the
Premises for such period or (ii) at the option of Landlord, rents received from
such subletting shall be applied first to payment of indebtedness other than
rent due hereunder from Tenant to Landlord; second, to the payment of any costs
of such subletting and of such alterations and repairs; third to payment of rent
due and unpaid hereunder; and the residue, if any, shall be held by Landlord and
applied in payment of future rent as the same becomes due hereunder. If Tenant
has been credited with any rent to be received by such subletting under option
(i) and such rent shall not be promptly paid to Landlord by the subtenant(s), or
if such rentals received from such subletting under option (ii) during any month
be less than that to be paid during that month by Tenant hereunder, Tenant shall
pay any such deficiency to Landlord. Such deficiency shall be calculated and
paid monthly. No taking possession of the Premises by Landlord shall be
construed as an election on its part to terminate this Lease unless a written
notice of such
page 5 of 8
<PAGE> 6
intention be given to Tenant. Notwithstanding any such subletting without
termination, Landlord may at any time hereafter elect to terminate this Lease
for such previous breach.
(e) The right to have a receiver appointed for Tenant upon application by
Landlord, to take possession of the Premises and to apply and rental collected
from the Premises and to exercise all other rights and remedies granted to
Landlord pursuant to subparagraph d, above.
23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease and if Tenant shall abandon, vacate or surrender
said Premises, or be dispossessed by the process of law, or otherwise, any
personal property belonging to Tenant and left on the Premises shall be deemed
to be abandoned at the option of Landlord, except such property as may be
mortgaged to Landlord.
24. DESTRUCTION In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental
damage and destruction caused from vandalism and accidents for which Tenant is
responsible for under Paragraph 10, Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior to the damage
or destruction, or
(b) Terminate this Lease (provided that the Premises is damaged to the
extent of 33 1/3% of the replacement cost).
If Landlord does not give Tenant notice in writing within thirty (30) days
from the destruction of the Premises of its election to either rebuild and
restore them, or to terminate this Lease, Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense, promptly to rebuild or restore the Premises to their condition prior
to the damage or destruction. Tenant shall be entitled to a reduction in rent
while such repair is being made in the proportion that the area of the Premises
rendered untenantable by such damage bears to the total area of the Premises.
If Landlord initially estimates that the rebuilding or restoration will exceed
180 days or if Landlord does not complete the rebuilding or restoration within
one hundred eighty (180) days following the date of destruction (such period of
time to be extended for delays caused by the fault or neglect of Tenant or
because of Acts of God, acts of public agencies, labor disputes, strikes,
fires, freight embargoes, rainy or stormy weather, inability to obtain
materials, supplies or fuels, acts of contractors or subcontractors, or delay
of the contractors or subcontractors due to such causes or other contingencies
beyond the control of Landlord), then Tenant shall have the right to terminate
this Lease by giving fifteen (15) days prior written notice to Landlord.
Notwithstanding anything herein to the contrary, Landlord's obligation to
rebuild or restore shall be limited to the building and interior improvements
constructed by Landlord as they existed as of the commencement date of the
Lease and shall not include restoration of Tenant's trade fixtures, equipment,
merchandise, or any improvements, alterations or additions made by Tenant to
the Premises, which Tenant shall forthwith replace or fully repair at Tenant's
sole cost and expense provided this Lease is not cancelled according to the
provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions, this
Lease shall remain in full force and effect. Tenant hereby expressly waives the
provisions of Section 1932, Subdivision 2, in section 1933, Subdivision 4 of the
California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33 1/3% of the replacement
cost thereof, Landlord may elect to terminate this Lease, whether the Premises
be injured or not. Notwithstanding anything to the contrary herein, Landlord may
terminate this Lease in the event of an uninsured event or if insurance proceeds
are insufficient to cover one hundred percent of the rebuilding costs net of the
deductible.
25. EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business.
Tenant's personal property, moving cost or loss or goodwill, shall be and
remain the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any entity
or body having the right or power of condemnation of its intention to condemn
the premises or any portion thereof, or (ii) any of the foregoing events occur
with respect to the taking of any space in the Complex not leased hereby, or if
any such spaces so taken or conveyed in lieu of such taking and Landlord shall
decide to discontinue the use and operation of the Complex, or decide to
demolish, alter or rebuild the Complex, then, in any of such events Landlord
shall have the right to terminate this Lease by giving Tenant written notice
thereof within sixty (60) days of the date of receipt of said written advice, or
commencement of said action or proceeding, or taking conveyance, which
termination shall take place as of the first to occur of the last day of the
calendar month next following the month in which such notice is given or the
date on which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if the
portion of the Premises taken or conveyed is so substantial that the Tenant can
no longer reasonably conduct its business, Tenant shall have the privilege of
terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do and upon
giving of such notice this Lease shall terminate on the last day of the
calendar month next following the month in which such notice is given, upon
payment by Tenant of the rent from the date of such taking or conveyance to the
date of termination.
If a portion of the Premises be taken by condemnation or conveyance in lieu
thereof and neither Landlord nor Tenant shall terminate this Lease as provided
herein, this Lease shall continue in full force and effect as to the part of the
Premises not so taken or conveyed, and the rent herein shall be apportioned as
of the date of such taking or conveyance so that thereafter the rent to be paid
by Tenant shall be in the ratio that the area of the portion of the Premises not
so taken or conveyed bears to the total area of the Premises prior to such
taking.
26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the
Complex or any interest therein, by any owner of the reversion then constituting
Landlord, the transferor shall thereby be released from any further liability
upon any of the terms, covenants or conditions (express or implied) herein
contained in favor of Tenant, and in such event, insofar as such transfer is
concerned. Tenant agrees to look solely to the responsibility of the successor
in interest of such transferor in and to the Complex and this Lease. This Lease
shall not be affected by any such sale or conveyance, and Tenant agrees to
attorn to the successor in interest of such transferor.
27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord in
the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale, Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
28. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly
provided in this Lease. Any holding over after the expiration or other
termination of the term of this Lease, with the consent of Landlord, shall be
construed to be a tenancy from month to month, on the same terms and conditions
herein specified insofar as applicable except that the monthly Basic Rent shall
be increased in an amount equal to one hundred fifty (150%) percent of the
monthly Basic Rent required during the last month of the Lease term.
29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten (10)
days' prior written notice to Landlord execute, acknowledge and deliver to
Landlord a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults, if any, are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises.
Tenant's failure to deliver such statement within such time shall be conclusive
upon Tenant that this Lease is in full force and effect, without modification
except as may be represented by Landlord; that there are no uncured defaults in
Landlord's performance, and that not more than one month's rent has been paid in
advance.
30. CONSTRUCTION CHANGES It is understood that the description of the Premises
and the location of ductwork, plumbing and other facilities therein are subject
to such minor changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises, and no such changes, or
any changes in plans for any other portions of the Complex shall affect this
Lease or entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any
drawings supplied to Tenant and verification of the accuracy of such drawings
rests with Tenant.
31. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder and such failure shall continue for five (5) days after written
notice thereof by Landlord, or shall fail to perform any other term or covenant
hereunder on its part to be performed, and such failure shall continue for
thirty (30) days after written notice thereof by Landlord, Landlord, without
waiving or releasing Tenant from any obligation of Tenant hereunder, may, but
shall not be obligated to, make any such payment or perform
page 6 of 8
<PAGE> 7
any such other term or covenant on Tenant's part to be performed. All sums so
paid by Landlord and all necessary costs of such performance by Landlord
together with interest thereon at the rate of the prime rate of interest per
annum as quoted by the Bank of America from the date of such payment or
performance by Landlord, shall be paid (and Tenant covenants to make such
payment) to Landlord on demand by Landlord, and Landlord shall have (in addition
to any other right or remedy of Landlord) the same rights and remedies in the
event of nonpayment by Tenant as in the case of failure by Tenant in the payment
of rent hereunder.
32. ATTORNEYS' FEES
(A) In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease, or
because of the breach of any provision of this Lease, or for any other relief
against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party shall
be deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgement.
(B) Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorney's fee.
33. WAIVER The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any way
affect, the right of either party to insist upon performance and observance by
the other party in strict accordance with the terms hereof.
34. NOTICES All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served on
Tenant by leaving the same at the Premises or if sent by United States certified
or registered mail, postage prepaid, addressed to Tenant at the Premises. All
notices demands, requests, advices or designations by Tenant to Landlord shall
be sent by United States certified or registered mail, postage prepaid,
addressed to Landlord at its offices at Peery/Arrillaga, 2560 Mission College
Blvd., #101, Santa Clara, CA 95054. Each notice, request, demand, advice or
designation referred to in this paragraph shall be deemed received on the date
of the personal service or mailing thereof in the manner herein provided, as the
case may be.
35. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.
36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than thirty (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
37. CORPORATE AUTHORITY If Tenant is a corporation, (or a partnership) each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or partnership)
in accordance with its terms. If Tenant is a corporation, Tenant shall, within
thirty (30) days after execution of this Lease, deliver to Landlord a certified
copy of the resolution of the Board of Directors of said corporation authorizing
or ratifying the execution of this Lease.
39. LIMITATION OF LIABILITY In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default hereunder by Landlord:
(i) the sole and exclusive remedy shall be against Landlord's interest in
the Premises leased herein;
(ii) no partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership)
(iii) no service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the
partnership)
(iv) no partner of Landlord shall be required to answer or otherwise plead
to any service of process;
(v) no judgment will be taken against any partner of Landlord;
(vi) any judgment taken against any partner of Landlord may be vacated and
set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the assets of any
partner of Landlord;
(viii) these covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or at common law.
40. MISCELLANEOUS AND GENERAL PROVISIONS
a. Tenant shall not, without the written consent of Landlord, use the name
of the building for any purpose other than as the address of the business
conducted by Tenant in the Premises.
b. This Lease shall in all respects be governed by and construed in
accordance with the laws of the State of California. If any provision of
this Lease shall be invalid, unenforceable or ineffective for any reason
whatsoever, all other provisions hereof shall be and remain in full force
and effect.
c. The term "Premises" includes the space leased hereby and any
improvements now or hereafter installed therein or attached thereto. The
term "Landlord" or any pronoun used in place thereof includes the plural as
well as the singular and the successors and assigns of Landlord. The term
"Tenant" or any pronoun used in place thereof includes the plural as well
as the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and
bind such heirs, executors, administrators, successors and permitted
assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used
in any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph
headings of this Lease are for convenience of reference only and shall have
no effect upon the construction or interpretation of any provision hereof.
d. Time is of the essence of this Lease and of each and all of its
provisions.
page 7 of 8
<PAGE> 8
e. At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within ten (10) days after
written demand from Landlord to Tenant, any quitclaim deed or other
document required by any reputable title company, licensed to operate in
the State of California, to remove the cloud or encumbrance created by
this Lease from the real property of which Tenant's Premises are a part.
f. This instrument along with any exhibits and attachments hereto
constitutes the entire agreement between Landlord and Tenant relative to
the Premises and this agreement and the exhibits and attachments may be
altered, amended or revoked only by an instrument in writing signed by
both Landlord and Tenant. Landlord and Tenant agree hereby that all prior
or contemporaneous oral agreements between and among themselves and their
agents or representatives relative to the leasing of the Premises are
merged in or revoked by this agreement.
g. Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the consent of the other.
h. Tenant further agrees to execute any amendments required by a lender
to enable Landlord to obtain financing, so long as Tenant's rights
hereunder are not substantially affected.
i. Paragraphs 43 through 52 are added hereto and are included as a part
of this lease.
j. Clauses, plats and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof.
k. Tenant covenants and agrees that no diminution or shutting off of
light, air or view by any structure which may be hereafter erected
(whether or not by Landlord) shall in any way affect his Lease, entitle
Tenant to any reduction of rent hereunder or result in any liability of
Landlord to Tenant.
41. BROKERS Tenant warrants that it had dealings with only the following real
estate brokers or agents in connection with the negotiation of this Lease: none
that it knows of no other real estate broker or agent who is entitled to a
commission in connection with this Lease.
42. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written
consent of Landlord first had and obtained and Landlord shall have the right to
remove any such sign, placard, picture, advertisement, name or notice without
notice to and at the expense of Tenant. If Tenant is allowed to print or affix
or in any way place a sign in, on, or about the Premises, upon expiration or
other sooner termination of this Lease, Tenant at Tenant's sole cost and expense
shall both remove such sign and repair all damage in such a manner as to
restore all aspects of the appearance of the Premises to the condition prior to
the placement of said sign.
All approved signs or lettering on outside doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly
from outside the Premises.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.
<TABLE>
<S> <C>
LANDLORD: TENANT:
JOHN ARRILLAGA SURVIVOR'S TRUST SELECTICA, INC.
a California corporation
By /s/ JOHN ARRILLAGA By /s/ [SIGNATURE ILLEGIBLE]
------------------------------------- --------------------------
John Arrillaga
Date: 10/6/99 Title Vice President, Finance & CEO
---------------------------------- -------------------------------
RICHARD T. PEERY SEPARATE PROPERTY TRUST
Print or Type Name /s/ [SIGNATURE ILLEGIBLE]
--------------------------
Date: 10-6-99
----------------------------------------
By /s/ RICHARD T. PEERY
-------------------------------------
Richard T. Peery, Trustee
Date: 10/6/99
----------------------------------
</TABLE>
page 8 of 8
<PAGE> 9
Paragraphs 43 through 52 to Lease Agreement dated October 1, 1999, By and
Between the John Arrillaga Survivor's Trust and the Richard T. Peery Separate
Property Trust, as Landlord, and Selectica, Inc., a California corporation, as
Tenant for 79,803(+/-) Square Feet of Space Located at 3 W. Plumeria Drive, San
Jose, California.
43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate
sum of TWENTY ONE MILLION SIX HUNDRED SIXTY FOUR THOUSAND SEVEN HUNDRED
FORTY AND 36/100 DOLLARS ($21,664,740.36), shall be payable as follows:
On November 15, 1999, the sum of FIFTY NINE THOUSAND TWO HUNDRED AND
NO/100 DOLLARS ($59,200.00) shall be due, representing the prorated Basic Rent
for the period of November 15, 1999 through November 30, 1999.
On December 1, 1999, the sum of ONE HUNDRED ELEVEN THOUSAND AND NO/100
DOLLARS ($111,000.00) shall be due, and a like sum due on the first day of each
month thereafter, through and including October 1, 2000.
On November 1, 2000, the sum of ONE HUNDRED THIRTY THOUSAND FIVE HUNDRED
THIRTY EIGHT AND 96/100 DOLLARS ($130,538.96) shall be due, representing the
prorated Basic Rent due for the month of November 2000.
On December 1, 2000, the sum of ONE HUNDRED FIFTY FIVE THOUSAND SIX
HUNDRED FIFTEEN AND 85/100 DOLLARS ($155,615.85) shall be due, and a like sum
due on the first day of each month thereafter, through and including November
1, 2001.
On December 1, 2001, the sum of ONE HUNDRED SIXTY THREE THOUSAND FIVE
HUNDRED NINETY SIX AND 15/100 DOLLARS ($163,596.15) shall be due, and a like sum
due on the first day of each month thereafter, through and including November 1,
2001.
On December 1, 2002, the sum of ONE HUNDRED SEVENTY TWO THOUSAND FIVE
HUNDRED SEVENTY SIX AND 45/100 DOLLARS ($171,576.45) shall be due, and a like
sum due on the first day of each month thereafter, through and including
November 1, 2003.
On December 1, 2003, the sum of ONE HUNDRED SEVENTY NINE THOUSAND FIVE
HUNDRED FIFTY SIX AND 75/100 DOLLARS ($179,556.75) shall be due, and a like sum
due on the first day of each month thereafter, through and including November
1, 2004.
On December 1, 2004, the sum of ONE HUNDRED EIGHTY SEVEN THOUSAND FIVE
HUNDRED THIRTY SEVEN AND 05/100 DOLLARS ($187,537.05) shall be due, and a like
sum due on the first day of each month thereafter, through and including
November 1, 2005.
On December 1, 2005, the sum of ONE HUNDRED NINETY FIVE THOUSAND FIVE
HUNDRED SEVENTEEN AND 35/100 DOLLARS ($195,517.35) shall be due, and a like sum
due on the first day of each month thereafter, through and including November 1,
2006.
On December 1, 2006, the sum of TWO HUNDRED THREE THOUSAND FOUR HUNDRED
NINETY SEVEN AND 65/100 DOLLARS ($203,497.65) shall be due, and a like sum due
on the first day of each month thereafter, through and including November 1,
2007.
On December 1, 2007, the sum of TWO HUNDRED ELEVEN THOUSAND FOUR HUNDRED
SEVENTY SEVEN AND 95/100 DOLLARS ($211,477.95) shall be due, and a like sum due
on the first day of each month thereafter, through and including November 1,
2008.
On December 1, 2008, the sum of TWO HUNDRED NINETEEN THOUSAND FOUR HUNDRED
FIFTY EIGHT AND 25/100 DOLLARS ($219,458.25) shall be due, and a like sum due
on the first day of each month thereafter, through and including November 1,
2009; or until the entire aggregate sum of TWENTY ONE MILLION SIX HUNDRED SIXTY
FOUR THOUSAND SEVEN HUNDRED FORTY AND 36/100 DOLLARS ($21,664,740.36) has been
paid.
44. "AS-IS" BASIS: Subject only to Landlord making the improvements shown on
Exhibit B to be attached hereto, it is hereby agreed that the Premises leased
hereunder is leased strictly on an
Page 9
<PAGE> 10
"as-is" basis and in its present condition, and in the configuration as shown
on Exhibit B to be attached hereto, and by reference made a part hereof. It is
specifically agreed between the parties that after Landlord makes the interior
improvements as shown on Exhibit B, Landlord shall not be required to make, nor
be responsible for any cost, in connection with any repair, restoration, and/or
improvement to the Premises in order for this Lease to commence, or thereafter,
throughout the Term of this Lease. Notwithstanding anything to the contrary
within this Lease, Landlord makes no warranty or representation of any kind or
nature whatsoever as to the condition or repair of the Premises, nor as to the
use or occupancy which may be made thereof.
45. CONSENT: Whenever the consent of one party to the other is required
hereunder, such consent shall not be unreasonably withheld.
46. CHOICE OF LAW; SEVERABILITY. This Lease shall in all respects be governed
by and construed in accordance with the laws of the State of California. If any
provisions of this Lease shall be invalid, unenforceable, or ineffective for
any reason whatsoever, all other provisions hereof shall be and remain in full
force and effect.
47. AUTHORITY TO EXECUTE. The parties executing this Lease Agreement hereby
warrant and represent that they are properly authorized to execute this Lease
Agreement and bind the parties on behalf of whom they execute this Lease
Agreement and to all of the terms, covenants and conditions of this Lease
Agreement as they relate to the respective parties hereto.
48. ASSESSMENT CREDITS: The demised property herein may be subject to a
special assessment levied by the City of San Jose as part of an Improvement
District. As a part of said special assessment proceedings (if any), additional
bonds were or may be sold and assessments were or may be levied to provide for
construction contingencies and reserve funds. Interest shall be earned on such
funds created for contingencies and on reserve funds which will be credited for
the benefit of said assessment district. To the extent surpluses are created in
said district through unused contingency funds, interest earnings or reserve
funds, such surpluses shall be deemed the property of Landlord. Notwithstanding
that such surpluses may be credited on assessments otherwise due against the
Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at
the time of any such credit of surpluses, an amount equal to all such surpluses
so credited. For example: if (i) the property is subject to an annual
assessment of $1,000.00, and (ii) a surplus of $200.00 is credited towards the
current year's assessment which reduces the assessment amount shown on the
property tax bill from $1,000.00 to $800.00, Tenant shall, upon receipt of
notice from Landlord, pay to Landlord said $200.00 credit as Additional Rent.
49. ASSIGNMENT AND SUBLETTING (CONTINUED):
A. Notwithstanding the foregoing, Landlord and Tenant agree that it
shall not be unreasonable for Landlord to refuse to consent to a proposed
assignment, sublease or other transfer ("Proposed Transfer") if the Premises or
any other portion of the Property would become subject to additional or
different Government Requirements as a direct or indirect consequence of the
Proposed Transfer and/or the Proposed Transferee's use and occupancy of the
Premises and the Property. However, Landlord may, in its sole discretion,
consent to such a Proposed Transfer where Landlord is indemnified by Tenant and
(i) Subtenant or (ii) Assignee, in form and substance satisfactory to
Landlord's counsel, by Tenant and/or the Proposed Transferee from and against
any and all costs, expenses, obligations and liability arising out of the
Proposed Transfer and/or the Proposed Transferee's use and occupancy of the
Premises and the Property.
B. Any and all sublease agreement(s) between Tenant and any and all
subtenant(s) (which agreements must be consented to by Landlord, pursuant to
the requirements of this Lease) shall contain the following language:
"If Landlord and Tenant jointly and voluntarily elect, for any reason
whatsoever, to terminate the Master Lease prior to the scheduled Master
Lease termination date, then this Sublease (if then still in effect) shall
terminate concurrently with the termination of the Master Lease. Subtenant
expressly acknowledges and agrees that (1) the voluntary termination of the
Master Lease by Landlord and Tenant and the resulting termination of this
Sublease shall not give Subtenant any right or power to make any legal or
equitable claim against
Page 10
<PAGE> 11
Landlord, including without limitation any claim for interference with
contract or interference with prospective economic advantage, and (2)
Subtenant hereby waives any and all rights it may have under law or at
equity against Landlord to challenge such an early termination of the
Sublease, and unconditionally releases and relieves Landlord, and its
officers, directors, employees and agents, from any and all claims,
demands, and/or causes of action whatsoever (collectively, "Claims"),
whether such matters are known or unknown, latent or apparent, suspected or
unsuspected, foreseeable or unforeseeable, which Subtenant may have arising
out of or in connection with any such early termination of this Sublease.
Subtenant knowingly and intentionally waives any and all protection which
is or may be given by Section 1542 of the California Civil Code which
provides as follows: "A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially affected
his settlement with debtor.
The term of this Sublease is therefore subject to early termination.
Subtenant's initials here below evidence (a) Subtenant's consideration of
and agreement to this early termination provision, (b) Subtenant's
acknowledgment that, in determining the net benefits to be derived by
Subtenant under the terms of this Sublease, Subtenant has anticipated the
potential for early termination, and (c) Subtenant's agreement to the
general waiver and release of Claims above.
Initials: _______________ Initials: _______________
Subtenant Tenant
50. BANKRUPTCY AND DEFAULT: Paragraph 22 is modified to provide that with
respect to non-monetary defaults not involving Tenant's failure to pay Basic
Rent or Additional Rent, Tenant shall not be in default of any non-monetary
obligation if (i) more than thirty (30) days is required to cure such
non-monetary default, and (ii) Tenant commences cure of such default as soon as
reasonably practicable after receiving written notice of such default from
Landlord and thereafter continuously and with due diligence prosecutes such
cure to completion.
51. ABANDONMENT: Paragraph 23 is modified to provide that Tenant shall not be
in default under the Lease if it leaves all or any part of Premises vacant so
long as (i) Tenant is performing all of its other obligations under the Lease
including the obligation to pay Basic Rent and Additional Rent (ii) Tenant
provides on-site security during normal business hours for those parts of the
Premises left vacant, (iii) such vacancy does not materially and adversely
affect the validity or coverage of any policy of insurance carried by Landlord
with respect to the Premises, and (iv) the utilities and heating and
ventilation system are operated and maintained to the extent necessary to
prevent damage to the Premises or its systems.
52. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to
the existence or use of "Hazardous Materials" (as defined herein) on, in, under
or about the Premises and real property located beneath said Premises and the
common areas of the Complex (hereinafter collectively referred to as the
"Property"):
A. As used herein, the term "Hazardous Materials" shall mean any
material, waste, chemical, mixture or byproduct which is or hereafter is
defined, listed or designated under Environmental Laws (defined below) as a
pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or
material, or any other unwholesome, hazardous, toxic, biohazardous, or
radioactive material, waste, chemical, mixture or byproduct, or which is listed,
regulated or restricted by any Environmental Law (including, without limitation,
petroleum hydrocarbons or any distillates or derivatives or fractions thereof,
polychlorinated biphenyls, or asbestos). As used herein, the term "Environmental
Laws" shall mean any applicable Federal, State of California or local government
law (including common law), statute, regulation, rule, ordinance, permit,
license, order, requirement, agreement, or approval, or any determination,
judgment, directive, or order of any executive or judicial authority at any
level of Federal, State of California or local government (whether now existing
or subsequently adopted or promulgated) relating to pollution or the protection
of the environment, ecology, natural resources, or public health and safety.
B. Tenant shall obtain Landlord's written consent, which may be withheld
in
Page 11
<PAGE> 12
Landlord's discretion, prior to the occurrence of any Tenant's Hazardous
Materials Activities (defined below); provided, however, that Landlord's
consent shall not be required for normal use in compliance with applicable
Environmental Laws of customary household and office supplies (Tenant shall
first provide Landlord with a list of said materials use), such as mild
cleaners, lubricants and copier toner. As used herein, the term "Tenant's
Hazardous Materials Activities" shall mean any and all use, handling,
generation, storage, disposal, treatment, transportation, release, discharge,
or emission of any Hazardous Materials on, in, beneath, to, from, at or about
the Property, in connection with Tenant's use of the Property, or by Tenant or
by any of Tenant's agents, employees, contractors, vendors, invitees, visitors
or its future subtenants or assignees. Tenant agrees that any and all Tenant's
Hazardous Materials Activities shall be conducted in strict, full compliance
with applicable Environmental Laws at Tenant's expense, and shall not result in
any contamination of the Property or the environment. Tenant agrees to provide
Landlord with prompt written notice of any spill or release of Hazardous
Materials at the Property during the term of the Lease of which Tenant becomes
aware, and further agrees to provide Landlord with prompt written notice of any
violation of Environmental Laws in connection with Tenant's Hazardous Materials
Activities of which Tenant becomes aware. If Tenant's Hazardous Materials
Activities involve Hazardous Materials other than normal use of customary
household and office supplies, Tenant also agrees at Tenant's expense: (i) to
install such Hazardous Materials monitoring, storage and containment devices as
Landlord reasonably deems necessary (Landlord shall have no obligation to
evaluate the need for any such installation or to require any such
installation); (ii) provide Landlord with a written inventory of such Hazardous
Materials, including an update of same each year upon the anniversary date of
the Commencement Date of the Lease ("Anniversary Date"); and (iii) on each
Anniversary Date, to retain a qualified environmental consultant, acceptable to
Landlord, to evaluate whether Tenant is in compliance with all applicable
Environmental Laws with respect to Tenant's Hazardous Materials Activities.
Tenant, at its expense, shall submit to Landlord a report from such
environmental consultant which discusses the environmental consultant's
findings within two (2) months of each Anniversary Date. Tenant, at its
expense, shall promptly undertake and complete any and all steps necessary, and
in full compliance with applicable Environmental Laws, to fully correct any and
all problems or deficiencies identified by the environmental consultant, and
promptly provide Landlord with documentation of all such corrections.
C. Prior to termination or expiration of the Lease, Tenant, at its
expense, shall (i) properly remove from the Property all Hazardous Materials
which come to be located at the Property in connection with Tenant's Hazardous
Materials Activities, and (ii) fully comply with and complete all facility
closure requirements of applicable Environmental Laws regarding Tenant's
Hazardous Materials Activities, including but not limited to (x) properly
restoring and repairing the Property to the extent damaged by such closure
activities, and (y) obtaining from the local Fire Department or other
appropriate governmental authority with jurisdiction a written concurrence that
closure has been completed in compliance with applicable Environmental Laws.
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
such closure activities.
D. If Landlord, in its sole discretion, believes that the Property has
become contaminated as a result of Tenant's Hazardous Materials Activities,
Landlord in addition to any other rights it may have under this Lease or under
Environmental Laws or other laws, may enter upon the Property and conduct
inspection, sampling and analysis, including but not limited to obtaining and
analyzing samples of soil and groundwater, for the purpose of determining the
nature and extent of such contamination. Tenant shall promptly reimburse
Landlord for the costs of such an investigation, including but not limited to
reasonable attorneys' fees Landlord incurs with respect to such investigation,
that discloses Hazardous Materials contamination for which Tenant is liable
under this Lease. Notwithstanding the above, Landlord may, at its option and in
its sole and absolute discretion, choose to perform remediation and obtain
reimbursement for cleanup costs as set forth herein from Tenant. Any cleanup
costs incurred by Landlord as the result of Tenant's Hazardous Materials
Activities shall be reimbursed by Tenant within thirty (30) days of presentation
of written documentation of the expense to Tenant by Landlord. Such
reimbursable costs shall include, but not be limited to, any reasonable
consultant and attorney fees incurred by Landlord. Tenant shall take all
actions necessary to preserve any claims it has against third parties,
including, but not limited to, its insurers, for claims related to its
operation, management of Hazardous Materials or contamination of the Property.
Except as may be required of Tenant by applicable Environmental Laws, Tenant
shall not perform any sampling, testing, or drilling to identify the presence
of any Hazardous Materials at the Property, without Landlord's prior written
consent which may be withheld in Landlord's discretion. Tenant shall promptly
provide Landlord with copies of any claims, notices, work plans, data and
reports prepared, received or submitted in connection with any sampling,
testing or drilling performed pursuant to the preceding sentence.
E. Tenant shall indemnify, defend (with legal counsel acceptable to
Landlord, whose
Page 12
<PAGE> 13
consent shall not unreasonably be withheld) and hold harmless Landlord, its
employees, assigns, successors, successors-in-interest, agents and
representatives from and against any and all claims (including but not limited
to third party claims from a private party or a government authority),
liabilities, obligations, losses, causes of action, demands, governmental
proceedings or directives, fines, penalties, expenses, costs (including but not
limited to reasonable attorneys', consultants' and other experts' fees and
costs), and damages, which arise from or relate to: (i) Tenant's Hazardous
Materials Activities; (ii) any Hazardous Materials contamination caused by
Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any
obligation of Tenant under this Paragraph 52 (collectively, "Tenant's
Environmental Indemnification"). Tenant's Environmental Indemnification shall
include but is not limited to the obligation to promptly and fully reimburse
Landlord for losses in or reductions to rental income, and diminution in fair
market value of the Property. Tenant's Environmental Indemnification shall
further include but is not limited to the obligation to diligently and properly
implement to completion, at Tenant's expense, any and all environmental
investigation, removal, remediation, monitoring, reporting, closure activities,
or other environmental response action (collectively, "Response Actions").
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
Response Actions.
It is agreed that the Tenant's responsibilities related to Hazardous Materials
will survive the expiration or termination of this Lease and that Landlord may
obtain specific performance of Tenant's responsibilities under this paragraph
52.
Page 13
<PAGE> 14
[GRAPHIC -- SITE PLAN]
EXHIBIT A TO LEASE AGREEMENT DATED OCTOBER 1, 1999 BY AND BETWEEN THE JOHN
ARRILLAGA SURVIVOR'S TRUST AND THE RICHARD T. PEERY SEPARATE PROPERTY TRUST, AS
LANDLORD, AND SELECTICA, INC., AS TENANT.
ORCHARD 4
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 26, 2000 in Amendment No. 2 the Registration
Statement (Form S-1 No. 333-92545) and related Prospectus of Selectica, Inc. for
the registration of 4,600,000 shares of its common stock.
Our audits also included the financial statement schedule listed in Item 16(b)
of this Registration Statement. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule referred
to above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
San Jose, California
February 1, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-2000
<PERIOD-START> APR-01-1998 APR-01-1999
<PERIOD-END> MAR-31-1999 DEC-31-2000
<CASH> 0 14,123,645
<SECURITIES> 0 0
<RECEIVABLES> 1,756,307 3,851,739
<ALLOWANCES> 104,000 254,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,818,761 18,322,878
<PP&E> 1,289,338 4,639,472
<DEPRECIATION> 276,869 990,099
<TOTAL-ASSETS> 3,193,326 27,119,596
<CURRENT-LIABILITIES> 2,457,800 7,472,145
<BONDS> 0 0
0 0
1,356 1,971
<COMMON> 623 819
<OTHER-SE> 733,547 19,644,661
<TOTAL-LIABILITY-AND-EQUITY> 3,193,326 27,119,596
<SALES> 1,656,015 5,180,625
<TOTAL-REVENUES> 3,444,482 9,439,582
<CGS> 183,715 258,828
<TOTAL-COSTS> 1,362,243 5,431,987
<OTHER-EXPENSES> 9,717,672 16,393,637
<LOSS-PROVISION> 74,250 150,000
<INTEREST-EXPENSE> 28,856 59,856
<INCOME-PRETAX> (7,536,901) (12,066,603)
<INCOME-TAX> 0 50,000
<INCOME-CONTINUING> (7,536,901) (12,116,603)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,536,901) (13,041,917)
<EPS-BASIC> (1.58) (2.47)
<EPS-DILUTED> (1.58) (2.47)
</TABLE>
